SINGAPORE (Apr 28): As the Covid-19 death toll eases in Spain, France and Italy, gold futures ended lower on Monday as investors turn to riskier assets amid hopes that lockdown measures in these countries will soon be lifted. 

According to local research house Phillip Futures, the benchmark Comex GC June gold futures contract ended lower by US$11.80 (S$16.76) for the second day straight at US$1,723.80 an ounce. This followed a Monday rally in stock prices, as investors bet on Italy easing its lockdown from May 4, after apparently hitting a peak in infection numbers. 

“The trajectory of technical indicators like the RSI is tapering off indicating some consolidation pattern ahead. The 14day RSI had failed to break below the mid-50 level last week when prices retraced suggesting some support at the low. Resistance is at US$1,768 and US$1,800 whilst the immediate support lies at last week low of $1,666.20 and $1,700,” said Phillip Futures analyst Avtar Sandu. 

Developments in the US have also served as further cause for optimism, with some states already easing their lockdown measures with more to follow in due course. New York – the viral epicenter - also plans to open part of its economy, with the anticipation of a return to some semblance of normalcy driving the Dow up 1.5% at close of US trading on Monday. 

Growing bullishness in developed markets is likely to drive down gold prices as investors substitute riskier asset classes with higher yields for bullion. This is in spite of gold bullishness from the Bank of Japan (BOJ) as it seeks to expand its quantitative easing programme. BOJ has already announced an unlimited government bond buyback and increased limits on corporate bond and commercial paper purchases to JPY 20 trillion (S$264.8 billion). 

Gold prices are also likely to be affected by safe haven buying in India as lockdown measures continue in the world’s largest gold consumer. Physical demand for gold will also likely be hit by the US Dollar’s strength vis-a-vis the rupee. Bloomberg predicts that the rupee will exceed its record low of INR76.91 to the dollar on 22 April to hit INR 80 to the greenback by end June. 

A possible silver lining for gold however, is a series of central bank meetings by the BOJ, the US Federal Reserve and the European Central Bank in quick succession this week. It is expected that the central banks will be bullish for gold amid greater support for more stimulus measures. 

Additionally, significant uncertainty in the world economy remains – the lifting of lockdown measures in the global economy is likely to be patchy and uneven due to a lack of global policy coordination in implementing lockdown measures. The ferocity of second wave infections in Singapore and Hokkaido suggest that investors would be wise to prepare for a potential reintroduction of lockdown measures even after the virus is initially brought under control. 

Phillip Futures sees strong gold fundamentals going forward, with growing central bank liquidity, low interest rates and rising money supply likely to make gold a welcome inclusion in investor portfolios to hedge against asset devaluation and currency risk. Investors can take advantage of sentiment-driven short-term prices to pick up gold on the cheap, though this atmosphere uncertainty will only contribute to stronger gold prices in the medium term.  

“The demand destruction due to Covid-19 cannot be overstated, volatility in financial markets remains elevated and precious metals especially gold remains as good hedge in an investor’s portfolio of other financial assets,” said Sandu, “currencies are being devalued by massive stimulus programs, [increasing] physical demand of gold to hedge against the debasement of fiat currencies.”