The safe-haven gold demand picked up steam as coronavirus concerns continue to spread across the globe amid rising cases in many countries. Despite the supportive measures by the authorities and further dovish hints by major central banks, global markets finish the turbulent week on a downbeat note, with investors beginning to price in a recession in the world economy.
Against a broad-based risk aversion, gold prices extended the rally to fresh early-2013 highs around $1,690 on Friday, having settled just shy of the $1,700 psychological level. The precious metal has been in a recovery mode since the start of the week following a decent plunge last Friday, when the prices fell to the $1,560 area but stayed above the key moving averages.
Now, the bullion could stage another rally as the panic in the global financial markets doesn’t show any signs of easing. Apart from the coronavirus theme, the chaos in the oil market adds to nervousness across the globe. In recent trading, Brent dipped to fresh early-July lows around $47 amid the reports that Russia has rejected the OPEC proposal on additional output cuts. It is reported that the OPEC+ meeting was delayed for a few hours, and many traders fear that it may not even start at all today.
Also, the precious metal derives support from dollar weakness amid a fall in 10-year US bond yields to fresh record lows and the increasing odds of another rate cut by the Federal Reserve this month. By the way, Fed’s Bullard said recently that recession risk models have spiked higher amid the coronavirus outbreak, and the central bank is willing to do what it takes to get through this.
From the technical point of view, gold prices need to make a clear break above the $1,690 area in order to target the $1,700 barrier. Of note, this region capped the bullish attempts last month and should the metal fail to overcome the resistance, a double top will be formed, suggesting a bearish correction may start. If so, the initial support now arrives at $1,670 and then at $1,650. Still, the RSI is pointing upwards but hasn’t entered the overbought territory just yet, so the bullish potential is still there in the near term.