XAU/USD Outlook Bearish For Q3 on Monetary Dangers, Covid-19 Pandemic

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XAU/USD Outlook Bearish For Q3 on Monetary Dangers, Covid-19 Pandemic

Gold Costs, XAU/USD, Coronavirus, Company Debt – TALKING POINTSGold costs might retreat if a second wave of the coronavirus hits


Gold Costs, XAU/USD, Coronavirus, Company Debt – TALKING POINTS

  • Gold costs might retreat if a second wave of the coronavirus hits the worldwide economic system
  • XAU/USD losses could also be amplified by rising unemployment figures, weak worth development
  • Gold might give up to USD if eroding fundamentals destabilize company debt market

Anti-fiat hedges like gold might give up within the third quarter if a second wave of the coronavirus hits the worldwide economic system and dampens future inflation prospects. Demand for haven-linked property just like the US Greenback might amplify XAU/USD’s losses as merchants re-allocate capital from comparatively illiquid commodities to extra frequently-traded currencies just like the Dollar.

Rising unemployment numbers and uncertainty embedded in labor statistics might additionally enlarge the enchantment of holding haven-linked property. The prospect of one other lockdown in quite a few localities round the USA might additional dampen worth development and erode the enchantment of gold. Fed Chairman Jerome Powell warned that the highway to restoration might be arduous and “lengthy”.

Moreover, monetary fragility within the company debt sector might additionally harm gold costs if the marketplace for leveraged loans and different credit score derivatives undermine interbank stability. The dramatic widening of spreads on credit score default swaps (CDS) for sub-investment grade company debt throughout the international selloff in fairness markets in March noticed gold costs crater with risk-oriented property.

An erosion of the basic circumstances – like reinstates or prolonged lockdown measures – might destabilize highly-leveraged corporations and improve the probability of widespread default if their already-thin income streams are dried up. On this atmosphere, gold costs might endure whereas a premium could also be placed on the anti-risk US Greenback.

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— Written by Dimitri Zabelin, Foreign money Analyst for DailyFX.com

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