Rising Covid cases is polishing gold’s appeal as safe haven asset

Gold prices reached a six-month high of $1833 during the week as the number of Covid cases surged across countries, triggering a safe haven appeal for the metal. At the time of writing, gold prices hovered around $1805, making a significant slide from the highs but still are up 0.9% for the week gone by. The benchmark US 10-year Treasury yield at 3.68% has inched higher last week after some uptick in US consumer sentiment and revised GDP data, which pulled back gold around $1800 level from the highs.

The economic data during the week from the US remained a mixed bag with the Conference Board’s one-year inflation expectation showing an ease down in inflation from 7.1% to 6.7%, and consumer confidence index spiked to eight months high of 108.3 in December from an upwardly revised 101.4 in November. However, the housing sector continued to reel from the higher mortgage rates pressure with permits for new buildings sliding 11.2% in November on a yearly basis.

Existing home sales were down 7.7% from a year ago, but November New Home sales rose by 5.8% . The US-made durable goods order fell 2.1% in November along with a dip in US consumer spending by 0.1% despite personal incoming rising by 0.4% for the same period.

The market falls into the last leg of the year next week, with major markets observing the Christmas holiday on Monday, thus expecting thin volumes throughout the week. The pending home sales are expected to show decline in November, which should deter high moves in gold. The lack of economic data releases will keep gold prices in a narrow trading range, but low volumes could bring higher volatility.

Weekly Range

Traders should be cautious of the thin volumes and any unfavorable Covid-19 related news could send gold prices higher next week, near-term support is at $1785/$1765 and the key resistance remains around $1840/1850.

(The author is Research Analyst at Sharekhan by BNP Paribas)

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