Gold price rallied to its highest level since 2012 as investors rushed to safety ahead of the corporate earnings season. Investors hope that an extremely weak results from American companies will push people into safe havens.
The earning season will start today, with big banks like JP Morgan and Wells Fargo expected to release their earnings. Other banks that will report this week are Goldman Sachs, Morgan Stanley, Bank of New York, and Citigroup. Other non-banks that will report are Johnson & Johnson, JB Hunt, and Blackrock among others.
Most analysts expect the corporate earnings to fall in the quarter. A recent report by FactSet found that earnings of companies in the S&P 500 could drop by 10%, which will be the worst quarter since 2008. Analysts also expect the forward guidance to be equally weak.
An extremely negative quarter could lead to more intervention by the Federal Reserve, which has pledged to do whatever it takes to save the economy. Just last month, the bank announced an open-ended quantitative easing policy, which has led to a significant increase of its balance sheet.
Another reason why gold price is rising is because of the current coronavirus pandemic and the shutdowns that have ensued. Investors are concerned that the shutdowns could remain for several more months because the disease has no cure.
Finally, gold price has risen because of increased demand in the ETF industry. According to Bloomberg, inflows into ETFs has risen to the highest level on record. The biggest beneficiary has been the SPDR Gold Shares. The ETF now has more than a thousand tons of gold.
On the hourly chart, gold price has declined slightly from the yesterday’s high of 1,730.92. The chart also shows that the price has been trading in an upward channel shown in black. In addition, the price is above the 50-day and 100-day exponential moving averages. I expect the price to test the lower line of the ascending channel, which is at around 1,705. I then expect the bullish trend to continue as the price attempts to test the 1,800-resistance level.
On the flipside, a bearish trend will continue if the price breaks below the 1,700 support level.