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XAUUSD - At Eight Year High around $1750 on Talk of Negative Rates

   

 

XAUUSD - At Eight Year High around 1750 on Talk of Negative Rates
 
In the last two weeks gold has rallied higher to reach an eight year high above $1760, off solid support at $1675. For the last several weeks, gold has enjoyed solid support from the key level of $1675, and it has rallied off this level on a few occasions keeping gold near the multi-year highs. This is the most significant level presently and bodes well for gold to be able to continue to move higher. It has generally moved well in the last two months surging higher from three month lows around $1450 up to the recent eight year high. If the support at $1675 fails, it will return to a range where it has spent the best part of this year trading in.

It spent around two weeks consolidating around $1600 after the first solid rally from near $1450 before pushing higher again. Earlier in March, gold traded around the key $1500 level whilst touching $1450 on two occasions threatening to move lower, however it has since rebounded well.

In the first half of March, gold fell sharply from seven year highs above $1700 and its volatility has increased four times during that time, and it was not alone with many markets experiencing high volatility, although this has now returned back to normal in the last month or so. While the $1675 level has stepped in and provided some support, the $1600 level is also likely to provide some more support should gold decline from its current trading levels. Throughout most of this year gold has enjoyed solid support from the $1550 level and even though it has been pressured a lot in that time, and fallen through only recently, the support level has generally stood up well.

The $1550 level has also established itself as a level of support and is likely to play this role again should gold decline from its current trading above $1700. Towards the end of last year, gold surged very strongly to its then highest level in seven years above $1610, after it exploded through the key $1500 level, which had been a significant level for several months. Prior to the surge higher, gold had moved very little trading right around the $1475 level, as it remained in a narrow range trading roughly between $1460 and $1480.

As the world is rocked by the ongoing coronavirus pandemic, central banks around the world are taking drastic steps to curb the economic fallout from the virus, while regular reports are now appearing on steps towards a vaccine.  All of these issues are having an impact on gold due to its haven appeal.  Even though the U.S. Federal Reserve (Fed) Chairman Jerome Powell reiterated only yesterday that the Fed is not considering negative interest rates, other central banks are which is why there remains speculation that the Fed may have little choice but to seriously consider it.  This is a view held by Zach Pandl from Goldman Sachs, who believes there could be a “big setback” in the U.S. economy from a second wave of coronavirus that causes another could prompt the Fed to consider a range of new policy options, including cutting interest rates into negative territory.  “I think fiscal policy would be the first step. I don’t think that cutting rates to negative territory would potentially be very helpful even in that environment,” he said.  “But who knows, policymakers are going to want to try new things if the economy is really struggling for a period of time,” he added.

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