Gold Advances After Swings With Economic Woes Returning to Fore

(Bloomberg) -- Spot gold headed for back-to-back gains as investors weighed the outlook for the metal’s record-setting rally after this week’s dramatic price swings.

Rising U.S. bond yields helped spark a sharp selloff in gold Tuesday and early Wednesday, followed by a rebound. Both gold and silver have resumed their uptrend after the correction and remain among the best-performing commodities this year, aided by negative real yields and vast stimulus to combat the fallout from the pandemic.

Bullion gained as much as 1.8% on Thursday as concerns over the outlook for economic recovery persist and central banks and governments signal further support for their economies. Two senior Federal Reserve officials said Wednesday that the U.S. failure to control the coronavirus pandemic has undermined the nation’s economic recovery, further bolstering support for gold as a haven asset, while the dollar weakened.

“Gold has much to support it,” James Steel, chief precious metals analyst at HSBC Securities (USA) Inc., said in an emailed note. “Concerns remain about the apparently stalled U.S. fiscal talks. Also the USD is slightly on the defensive. COVID-19 concerns remain high.”

Spot gold rose 1.6% to $1,946.74 an ounce by 11:33 a.m. in New York. On Tuesday, prices dropped 5.7%, the biggest one-day loss in seven years, following a rally to an all-time high last week. Futures for December delivery were 0.5% higher at $1,958 on the Comex in New York.

Silver for immediate delivery rose 4.5% to $26.6581 an ounce, after a 2.9% gain on Wednesday and a 15% slump on Tuesday.

The Bloomberg Dollar Spot Index fell 0.2%, heading for a second straight decline.

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“We still hold a positive view on gold, targeting a retest of the level of $2,000 an ounce by the end of this year,” said Giovanni Staunovo, an analyst at UBS Group AG. “The Fed should reiterate its dovish message and U.S. real yields and the broad U.S. dollar will likely fall further.”

The death toll from the virus continued to climb, with India’s total surpassing the U.K.’s, according to the latest data collated by Johns Hopkins University. There were signs of resilience to the economic harm wrought by the pandemic though. Australia added four times as many jobs as forecast in July, withstanding a fresh lockdown in Victoria and concerns about infection spreading.

Read More: Gold Consumers in India Hug Sidelines Ignoring Steep Price Drop

Bond yields have been on the rise since early August, and may continue to place a cap on gold’s rally.

“The extent of this selloff was so severe that I think it’s caused jitteriness about longs getting back in so quickly,” Edward Meir, an analyst at ED&F Man Capital Markets in New York, said by phone Thursday. “I think the more likely scenario is we will start a consolidation range. So we might bounce around between $1,850 and $2,050 for the next six weeks or so. Things don’t go up forever.”

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