Gold price retreated slightly during the Asian session as traders reflected on the surging new cases and the new Fed requirements for banks. The slight decline today comes two days after the price formed a shooting star pattern on the daily chart. As of this writing, gold is trading at $1760.
Coronavirus cases point to more Fed action
According to Johns Hopkins University, the number of global coronavirus infections has jumped to more than 9.6 million. In the United States, the number rose by more than 39,000 yesterday, even as most states continued to reopen. The number of infections has jumped in most states, with Florida, Texas, and Arizona being the most affected.
What does this mean for gold prices? It simply means that the pace of US recovery will be longer than what most analysts expected. This means that the likelihood of a V-shaped recovery is limited. Most importantly, this means that the Federal Reserve actions will remain for a longer period. For example, the Fed will retain interest rates at the current low for a longer period. It will also continue printing money for longer.
As a result, there is a likelihood that dollar strength will continue. As we have written before, dollar and gold tend to have an inverse relationship, which implies that gold price will continue rising.
Other reasons pointing to higher gold prices
There are other reasons that point to higher gold price in the near term, according to Forbes. The magazine points that potential US trade war with Europe will lead to higher prices. The same is true with a likely China and US trade conflict. Also, the upcoming earning season could lead to rotation from stocks to gold, which will be positive for the prices.
On the daily chart, we see that gold formed a shooting star pattern on Wednesday. This pattern is usually bearish in most times. The price is also above the 50-day and 100-day exponential moving averages. Also, the overall trend is bullish as shown by the pink trendline, which connects the lowest points on April 2 and June 5.
Therefore, even with the bearish shooting star pattern, there is a possibility that the upward trend will continue rising. But bulls will need to move above this week’s high of $1,780 first.
On the other hand, a move below $1,713 will invalidate this trend. This price is along the 100-day EMA and along the lowest level on June 17.