Gold Prices at 14-Week High as Yields Fall, Chinese Buyers Return

GOLD PRICE OUTLOOK:

• Gold prices extended higher above the $ 1,850 mark, reaching a 14-week high
• A weaker US Dollar and falling yields have boosted precious metal prices
• Inflation and viral concerns also bolstered the appeal of gold. Chinese imports soared in March

Gold prices edged higher on Monday as the 10-year Treasury yield fell for a third day. Poorer-than-expected US retail sales and consumer sentiment figures release on Friday eased market concerns about tapering Fed stimulus, pulling the US Dollar and yields lower. The real yield, as represented by the US 10-year inflation-indexed security, has declined to -0.92% from -0.87% seen mid last week. The DXY US Dollar index is hovering near an 11-week low at 90.40.

Recently, inflation fears and concerns about viral resurgence in the Asia-Pacific region remained on top of investors’ mind. Taiwan and Singapore, the two economies that handled the pandemic relatively well during 2020, have seen Covid-19 cases in the community surging. Both have since tightened border restrictions and social distancing controls to contain the spread of the virus. This is likely to result in a slower pace of recovery however, especially in the transportation, service and consumer discretionary sectors.

Rising demand for safety and inflation-hedge assets may continue to bolster the appeal of precious metals. Gold, silver and platinum prices have surged 10.0%, 15.2% and 6.8% respectively since the beginning of April, outperforming most equity benchmarks.

Meanwhile, Chinese buyers have likely returned to the bullion market after regulators increased import quotas to meet domestic demand. Chinese non-monetary gold imports surged to 38.58 tons in March, reaching the highest level seen more than a year (chart below). This trend may continue in the months to come, providing further support to bullion prices.

China Non-Monetary Gold Total Imports – Monthly

Source: Bloomberg, DailyFX

The world’s largest gold ETF – SPDR Gold Trust (GLD) – saw two consecutive weeks of net inflow. This suggests that more buyers are returning to the bullion market after months of selling. The number of GLD shares outstanding increased 1.1 million last week, after climbing 2.9 million in the prior week. Gold prices and the number of outstanding GLD shares have exhibited a strong positive correlation in the past (chart below). Therefore, an increased subscription of the ETF may be viewed as a bullish signal for gold.

Gold Price vs. GLD ETF Shares Outstanding – 12 Months

Source: Bloomberg, DailyFX

Technically, gold prices extended higher within an “Ascending Channel” after completing a “Double Bottom” chart pattern. This suggests that gold prices may have found a mid-term bottom at around $ 1,677 and since resumed its upward trajectory. The ceiling and the floor of the “Ascending Channel” may be viewed as immediate resistance and support levels respectively.

The MACD indicator is trending higher above the neutral midpoint, underscoring upward momentum.

Gold Price – Daily Chart

Chart by TradingView

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter