Gold is always considered as a valuable diversifies in times of economic and geopolitical uncertainty
A couple of months ago, the economic upswing was still firmly established, production expanded, and unemployment was declining. It all changed with the advent of the coronavirus or, to be precise: things turned really sour with the politically dictated lockdowns. As a reaction to the spread of the virus, governments in many countries ordered shops and firms to shut down and people to stay home. The inevitable result was a close-to-complete breakdown of the economic system. Hundreds of millions of people were thrown into outright despair; in India alone 120 million workers lost their jobs in April 2020.
In US too, jobs numbers weren’t quite appealing. Even though the U.S. ADP private jobs reports were stronger than expected for May and there was a decline in initial jobless claims. Still investors believe that the numbers won’t remain positive for long. Nonfarm payrolls are expected to drop by 7.5 million in May (compared with a 2.76 million private job losses estimated by ADP) and jobless rate is anticipated to jump to 19.1% from 14.7% in April, according to Bloomberg’s survey estimates.
Further, the precious metal was lifted by the European Central Bank’s decision to expand its pandemic emergency purchase programme by 600 billion Euros.
If the world economy continues to slip into weakness, then we can expect gold to hit a record high in the second half of 2020. A challenging economic environment and an increase in risk appetite has been a strengthening headwind for the yellow metal.