Gold prices resisted a pullback on Wednesday recovering to $1,650 as concerns about the impact continue to grow following an increase in the death toll. The market also benefited from more stimulus packages from the central banks of the US, New Zealand and Japan to ease the possibility of dipping into a recession.
Global economic still feeling shocks of 2008 crisis
The COVID-19 pandemic has hamstrung the world economy in monetary terms. Since the 2008 crisis interest rates have been declining almost hitting zero but the pandemic just worsened things. Although the Federal Reserve had managed to raise rates following the crisis on other places like Japan they have remained negative.
In this kind of condition, safe-haven assets are expected to remain strong and last longer. This is a sentiment felt in the market today as riskier plays push the demand for gold thus prices continue to rise.
Therefore if the coronavirus crisis persists and forces more stimulus a reversal of the current gold trend is unlikely. Currently gold has established a resistance level at $1664.73 which makes it tricky for buyers to enter while the $1640.81 support level could be up for consideration for sellers.
Bullion counter can witness some profit booking at higher levels. Cautious optimism around a slowdown in reported cases of the new coronavirus in some countries lifted European shares for a second day, even as companies continued to take steps to shore up cash after lockdowns crushed global demand. More than 1.32 million people worldwide have been reported as infected by the virus and 74,087 have died.
Indicative of sentiment, the holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.5% to 984.26 tonnes on Monday – its highest in more than three years. Japanese Prime Minister Shinzo Abe, poised to announce a state of emergency for Tokyo and six other prefectures, unveiled plans for a stimulus package to support the economy.