Gold prices inched higher in early trading on Thursday, as an increase in coronavirus cases threatened to derail economic recovery from the pandemic. A more dovish than expected June FOMC meeting also buoyed the yellow metal.
In Beijing, a surge in virus cases has taken place, with 31 new cases reported on Wednesday, bringing the total to 137 over the past week. Flights have been canceled, schools closed and 29 neighborhoods locked down. Data from Johns Hopkins University indicates that coronavirus COVID-19 global cases have risen to 8,359,869 with 449,229 fatalities.
Tedros Adhanom Ghebreyesus, the head of the World Health Organization (WHO) warned on Monday that “countries must stay alert to the possibility of resurgence.” At a press conference on Wednesday, he commented on the results of the trial showing that the steroid dexamethasone has had a beneficial effect on patients with extreme cases of COVID-19, stating: “This is very welcome news for those patients with severe illness.”
Geopolitical instability also supports safe havens such as gold. Clashes between China and India over a disputed border in the Ladakh region has resulted in the deaths of at least 20 Indian soldiers. Tensions between North and South Korea escalated after North Korea demolished an inter-Korean liaison office on Tuesday.
The Federal Reserve kept interest rates on hold at its June meeting and promised to maintain its asset purchases. Fed Chair Jerome Powell was slightly more dovish than expected in his statement, assuring that; “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates.” Low interest rates make non-yielding assets more appealing and typically support gold.
Meanwhile, strength in the US dollar and jitters in the stock market caused by concerns over a slower-than-expected economic recovery threaten to keep a lid on gold. Looking at the gold daily chart we can see well defined trendline resistance above, while the 50-period simple moving average represents support below. Bulls eye the recent high of 1,764 for a potential breakout.