Gold: After a rebound, have fundamentals changed much?

Spot gold has rebounded by more than 5% from its low near $1,764, but have fundamentals changed much?

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On Tuesday, spot gold extended its rebound by 0.4% to a 2-week high of $1,870, as U.S. stimulus hopes lifted market sentiment. Treasury Secretary Steven Mnuchin said he presented a fresh $916 billion economic relief bill to House Speaker Nancy Pelosi, a slightly larger package than the bipartisan proposal of $908 billion.

However, on the other hand, investment demand for gold appears to remain subdued even after a slump in prices. Bloomberg data showed that total known ETF holdings of gold was down 0.8% compared with end-November as of December 8.

In fact, the fundamentals for gold have not altered much, with expectations of roll-out of vaccines and recovery in global economy. Consequently, we might be approaching the limit of expansive fiscal and monetary policy soon.

Source: GAIN Capital, TradingView

The recent rebound may be seen as a technical rebound or short squeezing. On a daily chart, spot gold remains on the downside even though there might be some more room for rebound. It remains trading within a bearish channel drawn from August, and is capped by the declining 50-day moving average. The level at $1,920 may be considered as the nearest resistance, while the 1st and 2nd support are expected to be located at $1,765 and $1,735 respectively.

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