With the surge of a second wave of infections and the rise of geopolitical tension in Asia, we could see flows into safe havens. Long Gold?
A second wave of infection is surging as Beijing authorities ordered all schools closed as they struggle to halt a new outbreak which has already spread to neighboring provinces.
In US states such as Texas and Florida are facing a new wave of cases after lifting lockdown orders earlier than medical experts recommended.
With more countries reopening and easing restriction on air travel, without a proper vaccine, the 2nd wave of infection may be inevitable.
This could cause another round of lockdowns which will hinder the recovery of the economy and dampen the optimism of the market.
In addition, geopolitical tensions are also on the rise in Asia.
We are seeing the conflict between India-China in the disputed Kashmir region over boundary issues while North Korea blew up a joint liaison office with South Korea near the North's border town of Kaesong.
Twenty Indian troops were killed yesterday in Ladakh which came as a surprise after no bullets flew for four decades.
On the other hand, the liaison office between South Korea and North Korea was opened in 2018 for both countries to communicate.
The destruction of the office may be an act of aggression. Last Tuesday, Pyongyang announced it was severing official communication links with Seoul, and over the weekend Kim Yo-jong threatened to send troops into the demilitarized zone (DMZ) at the inter-Korean border.
All in all, the second wave of infections will continue to weigh on economic recovery while the rise of geopolitical tensions will keep the markets at the sidelines for now.
In our opinion, sticking with safe havens such as gold will be a safer choice during times like this.
XAU/USD is currently consolidating at the 1724 price region. We believe that gold could rise higher towards 1738 this week.
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