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Gold bulls in 7th heaven

After seven consecutive quarterly gains, and now set for its seventh consecutive weekly gain, Gold is clearly basking in the limelight in global financial markets

Stimulus measures rolled out across major economies, such as the US and the EU, are fueling Gold’s gains Gold’s upside was also given fresh impetus as US-China tensions returned to the fold With spot Gold having ventured into overbought territory, don’t be surprised if we see a technical pullback

Written by Han Tan, Market Analyst at FXTM

After seven consecutive quarterly gains, and now set for its seventh consecutive weekly gain, Gold is clearly basking in the limelight in global financial markets. Its week-to-date climb is exceeding 3.5 percent at the time of writing, bringing the precious metal to a new nine-year high. Spot Gold is now only about $50 away from the existing record high of $1921.17 mark that was registered on September 6, 2011.

At this pace, setting a new all-time high seems like a foregone conclusion. After all, we are now in a tremendously supportive environment for Bullion, a narrative not lost on investors as ETFs raise their holdings of the precious metal by record amounts.

No yields, no problem

The biggest driver for Gold’s rally this week, with prices set to register its biggest weekly gain since April, has been that real yields have ventured further into negative territory in US Treasury markets. Once the effects of inflation have been removed, 10-year Treasuries are now yielding minus 0.9 percent, while the 5-year is posting its deepest foray into negative territory since 2013. The stimulus measures rolled out across major economies, such as the US and the EU, are also fueling Gold’s gains. As major central banks step up their respective bond-buying programmes, which keeps a lid on bond yields, Gold’s allure becomes that much more appealing despite it being a non-yielding asset.

Amid the broad demand for safe haven assets, Gold clearly stands out not just because of its historical role as a store of wealth and a hedge against waning purchasing power, but also because of its potential for explosive gains going into 2021.

Gold bulls thrive on fear

Gold’s upside was also given fresh impetus as US-China tensions returned to the fold this week. The US ordered the closure of China’s consulate in Houston, and China has expressed their intent to retaliate. Such events would only embolden Bullion bulls, with the risk-averse investor likely taking some refuge on signs of heightened geopolitical risks.

Then there’s the global pandemic, which just refuses to go quietly into the night. The resurgence in the number of infections that have gripped major cities such as Melbourne and Hong Kong, all while major economies such as the US and India are still struggling to supress the pandemic, only dampens the prospects of the global economic recovery. Should the green shoots of the global economic recovery be snuffed out by another round of lockdowns across major economies, such risk-off events could help Gold realize more of its upside. 

Overbought, but not for long

From a technical perspective however, with spot Gold having ventured into overbought territory, don’t be surprised if we see a technical pullback in the near-term.

On July 8, when Gold’s 14-day relative strength index hit the 70 level, which denotes overbought levels, it was followed by two days of declines for spot Gold. Back on February 24, with the RSI nearing the 80-mark as it is today, spot prices capped a 3.51 percent drop for the week.

Still, any such declines could prove to be nothing more than mere footnotes in Gold’s relentless climb to historic highs, with Bulls eager for a buy-the-dip opportunity.

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