Gold extends rally, could challenge recent high, says Adam Button.
Gold broke the March highs to resume its rally for the fourth straight day, hitting an eight-year high of $1747. U.S. dollar funding stress eased further, prompting traders to revert towards proactively buying metals. Silver continue to rise vs. gold and the dollar as XAGUSD further broke the February trendline resistance, especially as the U.S. deficit is widely estimated to reach $3.8 trillion this year with debt hitting 100% of GDP. As equities show more optimism on slowing growth of Coronavirus cases, will the same rationalization apply to the upcoming dismal earnings season?
Crude oil extended its decline as markets returned from Easter Holiday, with U.S. crude losing for the third straight session to hit $20.30. Oil pushed higher early Sunday night, only to get slammed back down and then chop sideways to finish unchanged on Monday. But Tuesday proved a different story amid doubts with China's demand.
Virus news was largely more of the same but some talk of lifting some lockdown restrictions in May in the United States and Europe was positive, though not really reflected in markets.
Tuesday's rally in equities was led by consumer discretionary stocks and technology, with energies and financials as the only two losing sectors.
The notable directional move came in gold as it rose above the March highs to the best levels since 2012. The reality of central bank balance sheets and government deficits is dawning on the market and exchanged traded fund (ETF) flows show a steady bid in oil. Overlooked is that the worst-case virus scenarios have probably been avoided – things like government collapses and general panic. That diminishes the risk of liquidation of gold reserves, at least for now.
Technically, gold shows little major resistance until the all-time highs. Futures also continue to trade at a premium to spot in what's likely a sign that physical holders don't want to sell because of the difficulty in delivering right now.
Watch this space for a conversation with Ashraf on Trends in Yield Differentials
Adam Button is co-owner and managing director of ForexLive.com and a contributor at AshrafLaidi.com. You can see Ashraf’s daily analysis at www.AshrafLaidi.com and sign up for the Premium Insights. Ashraf's Tweet on indices here.
