Market Overview

After several months of a rally, gold prices went beyond strong physiological levels above $1830 per troy ounce, a maximum since 2011. This year alone gold has soared by 20%, and directed currency rates and the appreciation of precious metals.

This is related to several factors complimenting each other. Gold is rising as a safe haven asset amid investors’ fears concerning the spread of the pandemic. Risks of the second wave are turning more and more towards becoming a reality, manifesting itself in spikes of infections in the United States, Africa, Asia and South America.

On the other hand, the weakening U.S. Dollar, that has been depreciating since March 2020, is supporting yellow metal prices. The U.S. Dollar index fell to 96.5 points in July from its peak of 104 points in March.

All these events are stimulated by lose monetary policies put in place by the U.S. Federal Reserve and other major central banks around the world in recent months. Interest rates are decreasing as monetary injections into the global economy are being further implemented in order to bolster its growth. This not only serves to weaken the Greenback but also leads to a huge amounts of money in financial markets. Partially this money is being used for gold purchases. Such purchases are likely simulated by risks of rising inflation, and gold has always served as a hedge against rising prices.

This week the rally has halted due to high prices of the bullion. The above described processes are already priced in and most investors are just taking their profits, which leads to a correction in gold prices. Profit taking has led gold prices to fall below $1800 per troy ounce, and may pressure prices further within the area of $1780-$1810 per ounce and even to the $1740-$1760 strong support levels.

However, a mid-term upward trend for gold may be resumed. Technically speaking, another movement towards $1900 per troy ounce may be seen, which was the maximum level in September 2011. 

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.