Gold raced to all-time highs as the U.S dollar came under pressure, plunging to 22-month lows amid soaring U.S-China tensions. U.s equities, on the other hand, bounce back on Monday after coming under pressure the past week amid concerns over an extended rally.
Dollar Sell-Off Gold Rally
The dollar remained under pressure early in the week as the Euro continued to strengthen across the board on EU leaders reaching an agreement poised to kick-start the Euro economy. Bullion, on the other hand, remained bullish amid talk that the precious metal is on its way to touching record highs of $2,000.
The meteoric rise in Gold comes hot on the heels of simmering tensions between the U.S and China. Investors are increasingly turning to the precious metal as a safe-haven following retaliatory measures that have resulted in the closing of a U.S embassy in China in the aftermath of Washington ordering China to close its embassy in Houston.
The U.S currency remains under pressure in the wake of the U.S cutting interest rates to record lows. The dollar looks set to weaken even further as the Federal Reserve is expected to settle on an accommodating policy going forward.
The meteoric gold rise began in September of last year as the FED indicated it was ready to cut interest rates in the wake of a vicious trade war struggle with China. The bullish momentum gathered pace early this year as geopolitical tension spiked with the coronavirus pandemic compounding issues.
Gold Equities Outlook
Looking ahead, it promises to be an exciting week with critical releases poised to shape the equity and forex markets. Several tech giants are poised to deliver their quarterly earnings, which investors await to go through in the aftermath of the COVID-19 pandemic.
The Federal Reserve is also poised to shake the capital markets with a policy meeting report expected to sway trader’s sentiments on the dollar. The policy report comes amid growing wrangling in Washington over a new stimulus package highly needed to support the U.S economy that is facing its biggest test in the wake of a continuing wave of coronavirus infections.
Morgan Stanley strategists expect the July FOMC policy report to take a toll on investor’s sentiments from August to September as the FED looks increasingly dovish. With the FED expected to remain dovish demand for support, risk assets such as Gold should remain strong. Break-even inflation rates should also continue to elicit interest with the U.S dollar expected to continue weakening across the board.
The FED pumping more money to cushion the economy and calm the markets has only gone to hurt dollar sentiments, conversely sending the bullion higher. As the pandemic shows no signs of or easing off, the U.S government should continue to pump more money, which should benefit gold sentiments.
Talk of the U.S turning to negative interest rates as is the case in other countries should continue to hurt the greenback sentiments leading to a further spike in gold prices. Senior resource analyst at Mine Life Pty, Gavin Wendt, believes Gold has what it takes to rally past the $2,000 milestone as a weak dollar, and negative interest rate talk continues to provide the much-needed impetus.
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