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Gold erases losses as China’s Covid cases decline

Gold returns with a jump as China's Covid cases go down. Fed keeps a hawkish outlook which helps the shiny metal maximize its safe haven role.

Gold shots straight up as China starts to heal and dollar eases 

Gold staged a return this morning, wiping out yesterday’s losses. The gold market opened at the bottom and moved straight up. As the dollar started to weaken again, the precious metal recovered from lows around $1740. The yellow shiny metal traded over the psychological mark of $1750. This morning, the safe-haven demand that gave the dollar a boost has been overshadowed by optimism about China as Covid case counts fell for the first time in five days.

Sentiment improved overnight in China as the number of Covid cases decreased from 40,400 to 38,600 from the previous day. The Chinese Securities Regulatory Commission (CSRC) announced it would expand equity financing channels. This is including private share placements for China and Hong Kong-listed Chinese developers.

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CSRS is effectively lifting a ban that had been in place for years. Chinese officials also walked back a ban on equity refinancing for listed real estate firms. Overnight, there were rumors circulating that the Covid regulations would be relaxed sooner rather than later, but this has not yet been confirmed. Gold would undoubtedly benefit from such a rise, and it may even break higher should mood turn positive and dollar weakness worsen.

Fed’s Bullard, Williams, and Brainard’s remarks yesterday kept investors on edge as policymakers reaffirmed their hawkish tone. Bullard claimed that despite the three parties’ agreement that there are still upside risks to inflation, markets may be underestimating the chance of higher interest rates. In his speech, Fed Chair Powell is expected to hint to a slower rate of increases, but his remarks from yesterday might cause market players to pause.

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Additionally, Bullard reaffirmed his belief that rates should increase by at least another 1%, to a range of 5% to 5.25%. Separately, John Williams, the president of the New York Federal Reserve, stated that once inflation pressures gradually subside, the central bank will probably start cutting rates in 2024. He added that in order to reduce inflation, borrowing costs must increase even further.

The silver market probably takes signals from its more expensive cousin since it is related to gold. The metal fell by a substantially sharper -2.5 % on Monday. If you follow these markets, it will pay to keep an eye on this relationship as the majority of the main markets’ volatility is currently exposed to significant fundamental risk. Similar to gold, rebound in silver prices could be found on Tuesday. Silver traded briefly above $21.37; however, volatility is still high.

Gold brief technical analysis 

Currently trading above the psychological $1750 price, gold retains a bullish outlook. The upper resistance around $1760 could be broken by the bulls and new resistance could start forming at $1770. The bears are currently targeting the $1740 support line. In case data and volumes favor the bears, a new support could be forming at $1730. Volatility is high today. Therefore, intraday trading can bounce in this trading channel with stronger corrections.

gold chart

Gold chart, Source: Author’s technical analysis, Tradingview.com

Tomáš is a financial reporter with US markets as his main field. He actively started in finance only recently, however has been surrounded by many analyst and reporting professiona...

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