Gold may remain rangebound above $1,700, all eyes on virus situation

Ravindra Rao

Gold has been trading in a narrow range above $1,700 per troy ounce level for the last few sessions awaiting fresh triggers.

Gold rallied sharply earlier this month as the Federal Reserve forecasted a sharp decline in US GDP in 2020. Price, however, failed to break past the $1,750 and has turned rangebound.

ETF investors have also moved to sidelines, indicating a lack of direction. Gold holdings with SPDR ETF were unchanged for a third day on June 18 at 1,136.219 tonnes.

Ravindra Rao

Head - Commodity Research|Kotak Securities

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Gold is rangebound as market players await more clarity on the virus front. Rising coronavirus infections, especially in China and the US, have rekindled worries that authorities may re-impose restrictions to limit the spread and this lent support to gold.

The Chinese capital Beijing has reported several cases in the last few days connected to a wholesale market in the city. A number of American states including Texas and Florida, too, have seen a sharp rise in cases and hospitalisation.

While the focus remains on the US and China, more cases are also being reported in places like South Korea, New Zealand, Germany and Iran. Reopening of economies and lax social-distancing norms seem to have resulted in a surge in cases.

China has stepped up efforts to limit the virus spread. Scores of flights to and from Beijing have been cancelled, schools shut and some neighbourhoods blocked to limit the spread. Iran may also bring back some restrictions.

However, US officials have, so far, maintained that another lockdown is unlikely. President Donald Trump said on June 17 the US would not close businesses again. Trump's comments come after White House economic adviser Larry Kudlow and treasury secretary Steven Mnuchin said the US can't shut down the economy again.

Virus-related restrictions have had a severe impact on the global economy. With the easing of restrictions in the last few weeks, countries are now seeing some nascent recovery. To maintain the momentum, countries may want to avoid imposing fresh restrictions. However, if the virus outbreak continues to intensify, they may be forced to act.

The conundrum between dealing with the health emergency against managing the economic crisis has put market players in a fix and this uncertainty is also evident from mixed trade in financial markets. Unless this fix is resolved, gold could remain in a range.

The author is VP - Head Commodity Research at Kotak Securities.