The April gold contract continues to mark time on the charts with sideways action but in the process, we feel the $1550 level has been enforced as a key support level. While potential news flow from the virus situation is capable of popping-up and dominating price action at any time, this morning's initial focus will temporarily shift to the ECB interest rate decision. However, traders do not expect any change in policy with the bank expected to sustain a negative deposit rate of 0.5%.
While the Chinese virus situation has already become a global virus issue, economic news from Tuesday got the attention of gold following negative economic views from the Moody's credit rating agency earlier this week and the trade saw a contraction in the Chicago Fed National Activity Index and that has fostered some economic uncertainty.
Therefore the gold market is likely to take some initial direction from today's US scheduled data flow (weak data should lift prices and strong data should pressure). However, in the near term, it could be extremely difficult to determine which if any fundamental factor will be capable of driving gold prices out of the recent range and it could even be more difficult to determine which direction a specific fundamental will drive prices as the focus waffles back and forth from safe haven and fears of slowing.
For example, the initial surprise of the outbreak of the virus actually resulted in a slide in gold that appeared to be deflationary in nature. On the other hand, the technical condition seems to offer solid support and gold does not appear to be negatively impacted by gains in equities or strength in the dollar. We continue to suggest those looking to be long gold consider the purchase of put protection for those positions.
Given the intense media coverage of the virus, it wasn't surprising to see Gold ETFs yesterday add 124,130 ounces to their holdings bringing this year's net purchases up to 370,211 ounces. Clearly many ETF investors are seeking to hedge equity investments while others are simply attempting to capitalize on the prospect of a pandemic.
Unfortunately for silver bulls, ETF holdings were reduced by 485,597 ounces boosting this year's net sales to 8.68 million ounces and extending the liquidation streak to 7th day.
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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
