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Gold Down Most in a Week, Cracking $1,800 Support, as Dollar Bounces

Gold prices lost nearly 1% on Thursday, their most in a week, and fell below the key $1,800 support as rival dollar staged its sharpest rebound in that period.

The European Central Bank’s widely-expected decision to keep rates unchanged did not provide the yellow metal with any bullish leads. Neither was the slight dip on Wall Street’s main indexes particularly helpful.

Gold did get some support from worsening U.S.-China relations and a continued ramp up in coronavirus cases in the United States. The combined effects of these helped Comex futures settle at just above $1,800, though it fell back below that level in later trading, along with bullion.

U.S. gold futures for August delivery on Comex settled down $13.50, or 0.7%, at $1,800.30 per ounce. 

It was the biggest slide for gold on Comex since the 0.9% drop on July 9 and came after the nine-year high of $1,829.65 struck on July 8. 

By 2:36 PM ET (18:36 GMT), however, August gold was back under $1,800, trading down $16.85, or 0.9%, at $1,796.95.

Spot gold, a real-time indicator of bullion prices, was down $12.54, or 0.7%, at $1,797.58. Bullion scaled $1,809.22 a week earlier, setting a peak since September 2011.

The dollar index, which ties the greenback to a basket of six currencies, was up 0.3% at 96.310, its most since July 9.

Analysts said gold might have fallen more if not for safe-haven bids attracted by the metal from buyers worried about the continued escalation of Covid-19 case numbers in the United States. 

“Gold prices remain trapped in a range as virus uncertainty is countered by vaccine progress and as central banks adopt a wait-and-see approach for the rest of the summer,

The United States reported more than 67,000 new cases of coronavirus on Wednesday. Top U.S. pandemics expert Anthony Fauci said recently the daily case growth could reach 100,000 without proper social-distancing and other safety measures. 

More than 3.5 million Americans have been infected by Covid-19, with a death toll surpassing 140,000.  A new model by the University of Washington predicts 200,000 coronavirus deaths in the United States by Oct. 1, casting further doubts on economic reopening from lockdowns. 

The U.S. economy shrank 5% in the first three months of 2020 for its sharpest decline since the Great Recession of 2008/09, as most of the 50 states in the country went into lockdown to stem the outbreak of the virus. While most businesses have reopened over the past two months, economists still warn of a double-digit recession by the second quarter.

“Gold is trading as a risk asset, in a regime defined by a surge in liquidity and money supply,” TD Securities said in a note. “We expect that these common drivers will continue to drive capital to shelter itself from negative real yields in risk and real assets.” 

The Canadian bank-backed brokerage said speculative positioning in gold, while not extreme, has begun to bloat.

A decomposition of the themes driving trading decisions in gold revealed that macro themes and technicals have driven an increase in length, while risk-on has had a limited impact on positioning, and was positively correlated with length on average over the last month, the brokerage said.

“Therefore, we argue that money managers need not be concerned about trading gold in a risk-on environment, but instead should continue to watch for adverse shocks to the prevailing themes that have driven gold positioning higher,” TD Securities added.

“Gold is likely to continue to see record ETF inflows as coronavirus worries continue to worsen,” he said. “Gold should continue to rise as U.S. business activity lost most of its reopening momentum and many investors anticipate more stimulus will be thrown to try to avoid permanent labor damage to the economy.”

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