Gold Price Analysis: XAU/USD bulls eye $1,800 threshold as virus-led risk-off fade equities’ rally

• Gold prices seesaw in a choppy range near the highest since November 2011, an inch closer to $1,800.
• Stock bulls seem to step back as coronavirus woes attack hopes of the economic restart.
• ETF holdings remain strong, geopolitical tension adds to the safe-haven demand.

Gold prices ease from the multi-year top to $1,794 amid the initial Asian session on Wednesday. The bullion probed November 2011 top the previous day with an uptick to $1,797.40. However, the bulls are waiting for a strong push on the north to break the $1,800 psychological magnet.

Coronavirus resurgence stops stock bulls from cheering stimulus…

Not only the recent pause in the Wall Street benchmark buy weakness in the upside momentum across the global equities also pushes analysts to rethink over their bullish bias. Before a few weeks, we saw the biggest rally in the US shares since the Great Financial Crisis (GFC) and bulls never backed down afterward. While some at the floor cheer the global policymakers’ rush to combat the coronavirus (COVID-19), others analyze ways to divert funds over other venues like cryptos. As a result, ex-Goldman Sachs fund manager Raoul Pal cited the fears of “the largest insolvency event in all history.”

The push for Gold prices also gets backed by TD Securities as they said:

Gold continues to trade on the cusp of a breakout above the $1800/oz level, but has failed to do so just yet. With a slight risk-off tone to start the morning, and with the increase in inflation expectations pausing in line with risk appetite, the level has proved to offer fairly strong resistance. But, despite the short term noise, we believe gold is the midst of a regime shift, transitioning from trading as a safe-haven asset to an inflation-hedge product. Long-term inflation expectations are rising in sync with risk-on behavior, while rates-vol remains deeply constrained amid uber-supportive policy, fueling a process that weighs on real yields. With 10y breakevens continuing to print new post-COVID highs, the normalization in inflation expectations may remain a powerful driver lifting gold prices deeper into $1,800/oz territory. 

Read: Wall Street Close: Investors start to doubt the economic recovery playbook

Talking about the virus, cases in the US surged past-three million on Tuesday whereas Tokyo printed a five-day rise beyond 100 mark. Further, the Los Angeles county cases registered the biggest rally with 4,015 whereas Melbourne witnessed another lockdown, for six weeks, as numbers keep worrying the government.

Although the Trump administration offered a hint to another relief check, worth over $1.00 trillion, for locals, investors aren’t sure that will help the markets. As a result, the US 10-year Treasury yields seesaw around the multi-week low after shedding 44 basis points (bps) the previous day. Other than the US, Europe, Japan and the UK are some of the top-tier economies that are up for additional stimulus to ward off the economic insolvency burdened by the pandemic.

It’s worth mentioning that the Exchange Traded Funds (ETF) are witnessing a heavy inflow as far as the gold-backed schemes are concerned. The latest news suggests that the SPDR gold ETF holdings rose 211.9 tonnes, or nearly 22%, in the second quarter to attack the eight-year peak.

Other than the virus-led change in investment path, China’s tussles with the US, the UK and India are also favoring the risk-off mood. Recently, troops of both China and India stepped back from the controversial border area whereas Beijing criticizes Britain’s ban over Huawei. Further, US Secretary of State Mike Pompeo announced visa restrictions on some of the Chinese diplomats over Tibet issue.

Looking forward, the yellow metal traders are likely to remain bullish unless any news that heals the pair of the pandemic. However, any softening in the number or easing of the geopolitical tension might offer intermediate pullbacks.

Technical analysis

Unless slipping back below the monthly support line, near $1,783 now, sellers are less likely to enter. It should, however, be noted that the November 2011 peak surrounding $1,804 could offer breathing space to the bulls beyond the $1,800 threshold.

Also read: Gold Price Analysis: XAU/USD is in touching distance of the $1800 level and the 8.6 year high