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Gold Springs Back From Friday Lows, With Some Volatility

(C) Reuters.

By Barani Krishnan – U.S. gold futures’ most-active contract surged to above $2,060 an ounce on Monday, demonstrating its ability to rebound from last week’s slide, before profit-taking at the top led the glittering metal to a modestly higher close.

The dollar, which fell earlier in the day, managed to claw back into the positive for a second day in a row, shaping the mixed outcome for gold. The Dollar Index, which pits the greenback against six competing currencies, has become an outright contrarian trade for gold in the past two months. The dollar plunged some 5% between June and July, sending gold to $2,000 territory for the first time ever.

On Monday, the Dollar Index was up 0.13% at 93.537 by 2:00 PM ET (18:00 GMT), helped by the greenback’s rebound against the euro. It rose 0.7% on Friday, its biggest one-day gain since June 5. Forex analysts had a dimmer outlook for the dollar versus the euro, meaning gold had higher prospects for a rebound.

“Right now, you’ll see a little more consolidation this week of the big FX moves,” said Ed Moya, senior market analyst at OANDA in New York. “But the longer-term outlook continues to be great on the euro, so you’ll probably see people buying on dips.”

Gold for delivery in December in Comex settled up $11.70, or 0.6%, at $2,039.70 per ounce after shooting to $2,060.80 at one point. On Friday, December gold peaked $2,089, the highest ever for any gold futures contract on Comex, before ending the day 2% lower from Thursday’s settlement.

The front-month October gold futures contract on New York’s Comex closed up $12.30, or nearly 2%, at $2,030.30. On Thursday, October gold hit $2,070, record high for a benchmark gold futures contract on Comex, before shedding 2% on Friday.

“Technically, a decisive and sustained move below $2,029 could push gold lower towards $2,015-$2,000-$1,985-$1,970 and even make a case for revisit its previous all time high of $1,920,” said Sunil Kumar Dixit, an independent chartist on precious metals.

“Yet, if you’ve seen gold’s upward momentum of the past two months, you’ll see bidders rushing in at the lows to try and retest the recent record high of $2,075 on the spot contract that could eventually take the market to $2,099-$2,127 level, before the much-anticipated $2,150,” Dixit added.

Analysts cited fiscal stimulus in the United States and U.S.-China tensions ahead of key trade talks on Aug. 15 as among the reasons influencing Monday’s play in precious metals and forex markets.

Republican lawmakers aligned with President Donald Trump could agree to a new coronavirus relief bill this week with their Democrat rivals in Congress if a “fair deal” could be reached, U.S. Treasury Secretary Steven Mnuchin said on Monday. Such a deal will likely weigh further on the dollar.

Senior U.S. and Chinese trade officials will meet via teleconference on Saturday to review the implementation of their Phase 1 trade deal and likely air mutual grievances. The dollar had been a default hedge in the past for any breakdown in U.S.-China talks though that dynamic could change after the greenback’s tumble in recent months.

Silver, which was also dealt a severe hand on Friday, rebounded just like gold on Monday.

September, the front-month silver contract on Comex, settled up $1.72, or 6.2%, at $29.26 per ounce. It lost 86 cents, or 3%, on Friday to settle at $28.40. Before Friday’s tumble, September silver hit a seven-year high of $29.915, coming just short of the $30 targeted by many longs in the white-metal.

“Silver continues to outperform and remains our precious metal favorite as a clean positioning slate, strong investment flows and robust industrial demand combine for strong performance at a time when the microstructure creates a disincentive for silver bullion traders to sell,” TD Securities said in a note.