There are still significant fundamental drivers that could boost gold prices in the short- and medium-term
Gold prices extend consolidation on Monday while showing a slight bullish bias after a sell-off witnessed last week. The precious metal is flirting with the $1,950 area during the European hours, struggling to regain a mode decisive upside momentum as investors prefer a cautious tone after the recent pick up in volatility.
Despite the bullion fails to regain the $2,000 mark and climb to fresh all-time highs, the longer-term outlook for prices remains upbeat. First, the prospects of the global economic recovery remain cloudy as the coronavirus pandemic continues to hurt the activity. Of note, the data released earlier today showed that the Japanese economy contracted at a record pace in the second quarter, adding to the gloomy economic picture globally.
Second, the US and China continue their tit-for-tat policy, adding to investor concerns. The two countries postponed the virtual trade talks that were to take place during the weekend, while a new date of negotiations wasn’t announced, which could be a sign of a further rise in tensions without resolving the key trade and diplomatic issues between the two world’s largest economies.
Third, the greenback remains weak despite the selling pressure surrounding the USD has eased somehow. The dollar continues to lose its appeal amid Trump’s aggressive foreign policy. Furthermore, more dovish rhetoric from the Federal Reserve could add to the negative sentiment surrounding the American currency once the FOMC reveals its latest policy meeting minutes later this week.
In other words, there are still significant fundamental drivers that could boost gold prices in the short- and medium-term. As such, a recovery above the $2,000 barrier could be expected in the coming weeks, or even days if market sentiment deteriorates any time soon.
In the immediate term, the bullion needs to turn the $1,970 area back into support to retarget the above-mentioned psychological level. On the downside, the nearest support arrives at $1,930. As long as the prices stay above the $1,900 handle, bearish risks are limited in the short term.