Gold price hits record highs on a weaker dollar

Gold prices have gained a further 2% on Monday to print the record highs above $1940/oz. A weaker dollar across the board, massive stimulus packages introduced around the globe, and resurging U.S. – China conflict have all helped gold prices to surge.

Fundamental analysis: Gold prices shot higher as dollar takes a dive

A surge in the number of new COVID-19 infections around the world is likely to prompt new actions from the central banks and major world powers. A new round of stimulus packages is expected in the fall to help troubled economies survive one of the worst financial crises in the last 100 years.  

According to media reports, the White House and Senate Republicans have reached a preliminary agreement on the next stimulus package.

“And as long as the (virus situation) gets worse, the market is discounting more stimulus for a longer period of time and in bigger quantities, and all of that is bullish for gold,” said Edward Meir, analyst at ED&F Man Capital Markets.

Meir also added that he expects gold to continue gaining as investors are shifting funds from the dollar to gold and other assets. The dollar index is trading lower for the seventh consecutive day to hit a fresh 2-year low. 

“Further support is also coming from falling yields, weaker dollar and geopolitical tensions between the U.S. and China. The safe-haven demand (for gold) has been rising while there is none for USD anymore,” said ANZ commodity strategist Soni Kumari.

The markets are now anticipating a new set of monetary action from the Federal Reserve that are likely to apply additional pressure on the dollar. 

Technical analysis: New record highs

Gold prices have added an additional 2% on Monday to its impressive bullish run to clear the previous record high set in 2011. The yellow metal price is now trading comfortably above the previous record high at $1921/oz. 

If the buyers can secure a daily, and more importantly, weekly close above this level, the door would be open for a move towards the psychologically-important $2000/oz level. This area also hosts the 127.2% Fibonacci extension of the 2012 – 2015 crash in gold prices. 

Therefore, a new set of monetary and fiscal actions to support embattled economies may facilitate a new round of gold buying. 

Summary

Gold prices have continued their impressive bullish run to hit record highs above $1940/oz. The buyers will now want to tag the psychologically-important $2000/oz level.