2. Points To Be Covered Today:
• The Delta Variant Spreads
• The High Transmission Rate Of Delta
• Delta Has Become The Dominant Strain In The Globe
• Implications For Gold
• Gold’s Favorite Environment
• Gold Technical & Fundamental Overview
• Gold Price: Key Levels To Watch
3. The Delta Variant Spreads
• The coronavirus strikes back! It’s bad news for almost everyone and
everything… except for merciless gold.
• So, were you hoping that the epidemic was over? After all, millions of
people got vaccinated, and the economy is booming.
• Restrictions have been generally lifted, the Fed removed the parts related
to the pandemic from its monetary policy statement… why bother then?
• The answer is: Delta. And I’m referring to the Sars-Cov-2 variant that
causes Covid-19. As you know, viruses mutate from time to time as they
spread and replicate. Delta is one of such mutations.
• Most mutations are not dangerous or even dumb (they weaken the
viruses). But the problem with Delta is that it’s “the fastest and fittest”
of all coronavirus variants, as the WHO described it. Just think about
Rambo on steroids or a witcher that has just taken all his potions. Oh…
Anyway, you got the point.
4. Delta Is Much More Contagious Than
The Original Strain
• In particular, Delta is much more contagious than
the original strain, and is spreading about twice as
fast.
• A person infected with the classic version of
the coronavirus can spread it to 2.5 other people,
while a person with Delta can infect 3.5-4 other
people.
• Delta might also be more severe and more lethal
than the original strain.
5. The High Transmission Rate Of Delta
• The good news is that many people have been vaccinated and
the vaccines (especially the mRNA-type) protect nicely against
Delta.
• However, the bad news is that many people still haven’t gotten
the shots, for many reasons.
• The tricky part here is that, given the high transmission rate of
Delta, we would need 90% or even more people to be
vaccinated to reach herd immunity, which is still a song of the
future.
6. Delta Has Become The Dominant
Strain In The Globe
• High transmissibility is the reason why Delta has become the
dominant strain in the globe.
• It also increases the risk of further, potentially even more dangerous,
mutations (more transmissions, more chances to evolve into
Terminator).
• In other words, Delta’s fast transmission could reignite
the pandemic.
• As the chart below shows, this is actually already happening.
• As one can see, Delta reversed the trend of the declining number of
new cases, spreading particularly quickly in the United Kingdom.
• But the U.S. Covid-19 cases also soared, surging 70% last week,
while deaths went up 26%.
8. Implications For Gold
• What do rising cases of Delta mean for gold? Well, I would say
that Delta is fundamentally positive for gold and could mutate
it into a more bullish strain.
• If the pandemic accelerates, governments may reintroduce some
of the sanitary restrictions or even lockdowns.
• A new wave of the epidemic would also increase the chances of a
big infrastructure bill in the US and other fiscal stimuli, while the
Fed would likely remain dovish for longer than it would without
Delta.
• So, inflation could intensify even further, while the real interest
rates would drop.
• Therefore, concerned investors would turn to inflation
hedges and safe havens such as gold.
9. Implications For Gold - I
• However, what’s described above is the medium-term effects
that Delta would cause if it triggered a new wave of cases and
restrictions.
• In the short run, however, gold may decline, as worried
investors would sell the assets and turn to the US dollar.
This is what we saw in March 2020 but also on Monday (July
19, 2021).
• As the chart below shows, the London price of gold has
declined, as the stronger greenback counterweighted the
decline in the equities (Dow plunged more than 2%) and bond
yields.
11. Gold’s Favorite Environment
• Furthermore, the next Great Lockdown is unlikely.
• Even if the government reintroduces some restrictions,
their economic impact will be much smaller than during
the earlier waves, as economies have adapted to
operating under the epidemiological regime.
• Importantly, a new wave would be mainly limited to
unvaccinated people, which would reduce the burden of
health care systems and chances of hard lockdowns.
12. Gold’s Favorite Environment - I
• However, Monday’s equity selloff suggests a change in the market
narrative.
• Investors have possibly realized that they had too optimistic expectations –
economic growth may actually be slower than they thought.
• They have priced in a very strong recovery, which doesn’t have to
materialize if a new pandemic wave hits the economy.
• Slower growth plus high inflation equals stagflation, gold’s favorite
environment.
• Having said that, it may take a while until gold rallies, as the end
of reflation trade may also imply that some investors will sell commodities,
including, to some extent, gold.
• Also, please note that the optimism and gains have quickly returned to the
stock market, so the economic impact of Delta may be limited.
14. Gold Technical Overview - I
• Gold bears failed to find a foothold below strong support at $1794, which is the confluence of the
SMA100 one-day and pivot point one-day S1.
• Therefore, the bulls are seen fighting back control, looking to recapture the Fibonacci 23.6% one-
day at $1800 if the $1798 barrier is taken out convincingly.
• That level is the convergence of the previous low four-hour and Bollinger Band one-day Middle.
• Should the buying interest sustain gold price could challenge the next hurdle at $1802, the
intersection of the SMA5 four-hour and Fibonacci 38.2% one-day.
• Alternatively, if the rebound falters, the abovementioned key support at $1794 could be put to test
once again.
• A firm break below the latter could expose the $1791 cap, which is the meeting point of the previous
week’s low and pivot point one-week S1.
• A powerful support of Fibonacci 23.6% one-week at $1789 will challenge the bearish commitments.
15. Gold Fundamental Overview
• Gold price is off the lows but remains under pressure amid a better market mood and rising
Treasury yields, making the non-yielding gold less attractive.
• Treasury yields rebounded after the 20-year bond auction failed to find a decent response.
Meanwhile, a broadly subdued US dollar helps keep a floor under gold price.
• The main event risk this Thursday remains the European Central Bank (ECB) monetary
policy decision, the first after the new strategy, which could likely have a significant impact on gold
price.
• The central bank is expected to make no changes to its interest rates but may pledge more stimulus
to make good on the commitment to boost inflation. Dovish ECB outcome is likely to boost the risk
sentiment further, keeping the yields elevated at gold’s expense.
• Also, of note remains the US weekly Jobless Claims and other minority reports for fresh trading
opportunities. Technically, gold price awaits acceptance below $1795 for unleashing additional
downside.
17. Gold Price Is Off The Lows But Remains Under
Pressure
• Gold price is off the lows but remains under pressure amid a better market mood and rising
Treasury yields, making the non-yielding gold less attractive. Treasury yields rebounded after the
20-year bond auction failed to find a decent response.
• Meanwhile, a broadly subdued US dollar helps keep a floor under gold price. The main event risk
this Thursday remains the European Central Bank (ECB) monetary policy decision, the first after
the new strategy, which could likely have a significant impact on gold price.
• The central bank is expected to make no changes to its interest rates but may pledge more
stimulus to make good on the commitment to boost inflation. Dovish ECB outcome is likely to boost
the risk sentiment further, keeping the yields elevated at gold’s expense.
• Also, of note remains the US weekly Jobless Claims and other minority reports for fresh trading
opportunities.
• Technically, gold price awaits acceptance below $1795 for unleashing additional downside.
18. Gold Price: Key Levels To Watch
• The Technical Confluences Detector shows that gold bears failed to find a foothold below strong support at
$1794, which is the confluence of the SMA100 one-day and pivot point one-day S1.
• Therefore, the bulls are seen fighting back control, looking to recapture the Fibonacci 23.6% one-day at
$1800 if the $1798 barrier is taken out convincingly.
• That level is the convergence of the previous low four-hour and Bollinger Band one-day Middle.
• Should the buying interest sustain gold price could challenge the next hurdle at $1802, the intersection of the
SMA5 four-hour and Fibonacci 38.2% one-day.
• Alternatively, if the rebound falters, the abovementioned key support at $1794 could be put to test once again.
• A firm break below the latter could expose the $1791 cap, which is the meeting point of the previous week’s
low and pivot point one-week S1.
• A powerful support of Fibonacci 23.6% one-week at $1789 will challenge the bearish commitments.
