After a recovery seen last week, gold prices struggle to extend gains on Monday. Still, the precious metal manages to hold above the $1,600 handle despite the greenback turned into a recovery mode. Risk aversion continues to prevail in the global financial markets as the coronavirus keeps spreading across the globe. Against this backdrop, investors prefer to get rid of high-yielding assets despite the global authorities take further steps to ease the consequences of the outbreak.
As a result, gold demand persists, with prices continue to target the $1,640 region. In the short-term, however, the bullion lacks the upside momentum for the time being due to partial profit-taking following the recent rally, as investors prefer to sit on cash while coronavirus cases continue to rise in many countries.
On Friday, the IMF head warned that governments must respond with massive measures to avoid a series of bankruptcies. Today, the German government advisors warned of the deepest recession since 2009 and said that the German economy will shrink significantly this year while the VDMA said that 45% of companies suffer from serious or noticeable supply chain disruptions. Meanwhile, China has suspended the entry of foreigners over the weekend. Amid these news headlines, the precious metal will likely remain afloat for the time being, as gold is still considered as a traditional safe-haven asset for investors.
From the technical point of view, gold needs to confirm the $1,590 area as a local support zone so that to target higher levels following the current consolidation. On the upside, an important resistance arrives around $1,640 but the bullion will hardly be able to make a decisive break above this level, at least in the near term, as investors remain cautious even in the gold markets. In the longer term, the yellow metal may target the $1,700 handle as the coronavirus outbreak will persist so far and will put further downside pressure on risky assets, and the volatility in the financial markets may remain elevated.
