Gold extends recovery as stocks, yields and dollar drop

After last week’s big drop, gold has staged a sharp rally and looks set to break to a new high for the year. Investors are ignoring concerns over physical demand for the precious metal and instead concentrating on its appeal as a safe-haven commodity. The metal has risen to a high so far of $1666, supported by this week’s emergency rate cuts by global central banks and renewed falls for stocks while the 10-year Treasury yield has hit a new all-time low of 0.912%.

Today, the coronavirus-linked deaths in Italy has jumped to 148 with cases climbing to 3,858. In the UK, the virus has claimed its first victim’s life with more new cases reported. In the US, California has declared coronavirus emergency as a man died after falling ill with the virus while on a cruise ship.

Concerns over the economic impact of the coronavirus has seen major central banks such as the Fed, BOC and RBA cut interest rates over the past few days. With the virus spreading, more policy action should be on the way soon, potentially providing further boost for gold. Indeed, the BOC’s Governor Poloz has today stated that weakness in confidence could lead to a more persistent downturn and that the resilience of the Canadian economy could be seriously tested by virus, while the global economy will see significant disruptions from virus. Bank of England’s outgoing Governor Mark Carney has stated that the Bank’s response to virus will be “collective and timely.”

With more central bank action potentially on the way, depressing yields further, gold may continue to ascend towards its previous peak of just shy of $1690 soon. Key support is seen at $1650. For as long as this level holds, the path of least resistance remains to the upside towards the levels shown on the chart:

Source: TradingView

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