Gold futures ended lower on Tuesday as global equities rallied, in response to the lifting of business lockdowns as the coronavirus pandemic recedes, along with encouraging reports of progress toward a COVID-19 vaccine, dulling the yellow metal’s haven appeal.
Gold is trading “in a scenario where investors are looking for fresh stimuli to move markets. The risk on approach seen on stocks in the last few days pulled down the price,” said Carlo Alberto De Casa, chief analyst at ActivTrades, in a note.
“Only a clear recovery of $1,750 would open space for further rallies, while a decline below $1,725 would increase the likelihood of another test of $1,700 and potentially down to $1,671-$1,675, where there is a strong static support,” he said.
Analysts said some underlying support comes from rising U.S.-China tensions.
Beijing on Monday denounced a U.S. move to expand a so-called entity list of Chinese companies which are restricted from doing business with U.S. firms for alleged human rights abuses in the Xinjian Uighur Autonomous region. That comes after White House national security adviser Robert O’Brien warned Sunday that the U.S. is likely to sanction China if it goes ahead with plans for new national security laws in Hong Kong, where protests have reignited.
“Barbs by both sides appear to have inflicted wounds too deep to just mask over,” said Jim Wyckoff, senior analyst at Kitco.com, in daily commentary. “Some market watchers are predicting the U.S. and China will be the next major “cold war”—comparing the situation to the U.S.-Soviet Union stare-down that lasted decades.”
The precious metal also moved lower as Tuesday marked the expiration of June gold options. Traders sell the metal ahead of the expiration to “avoid large margin calls as options in the money become futures contracts needing margin,” said George Gero, managing director at RBC Wealth Management. A call option in the money refers a situation where the market price is above the strike price.
“Roll over to the August contract and other outer months are “becoming more expensive as the rush is on,” he said in emailed commentary.
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