It was a milestone week for gold as it crossed the $1800 mark or the first time since 2011. The second half of 2020 proved to be quite an achievement for the yellow metal, and with strong fundamentals and what appears to be an unstoppable uptrend, investor world over is completely bullish for gold.
Gold prices are up more than 16% since the start of the year, seeing massive gains on the back of the COVID-19 fears as well as extensive monetary policy stimuli across the globe.
We all know that everyone likes to own gold – not only because it’s a store of value but also because it has always proven to be a safe haven asset during crisis.
During exceptional times, people rush to buy gold and shift investment to assets like precious metals, government bonds etc.
Currently not only the times are uncertain but the situation world over is completely extra-ordinary – never seen before circumstances. There is a lot of uncertainty in the global economy because of the COVID-19 pandemic.
Covid has created medical emergency globally and created a very negative impact on global growth. Further to this, escalating tensions between India-China, China –U.S. and U.S- Europe have increased the demand for gold.
This increased demand led to a push in gold prices. What supported the price rise further was a major dip on Wednesday. A slight fall leads to investors rushing to buy the yellow metal and take advantage of even the slightest drop in prices. This week too, investors jumped in to buy gold when prices fell on Wednesday
This week’s drop in prices were witnessed mainly due to two reason-
Labour Report- U.S. labour market as 4.8 million jobs were created in June wasn’t enough to keep gold prices down for long as the market looks to end the shortened trading week with a modest gain.
Stronger Equities– World over, countries were seen easing the restrictions which led to the belief that soon the economies will pick up. There was growing optimism seen in equities which led to a minor fall in gold prices.
But investors believe that this dip will be short lived and gold will bounce back from these lows as gold is a hedge tool.
Further a rise is expected as following key elements will continue to affect gold-
- Coronavirus pandemic
- Massive social unrest,
- Trade-related issues with China
- Financial stimulus
With the Fed continuing to inflate the money supply while investors continue to lose faith in global government and their currencies, I expect gold and particularly select precious metals, to experience a sustained rally once this consolidation has ended.
With looming concerns over a surge in the coronavirus cases worldwide and economic recovery unlikely to wane, gold could likely continue drawing the haven bids in the near-term. Because of the economic impact of the COVID-19 pandemic, the global economy will be in a fragile state for a longer-than-expected period. During the last great bull market, which went from 2001 to 2011, the gold price went up by a factor of six — from $300 to $1,900.
Keeping the current pace in mind, the ongoing geopolitical tensions around the globe and any escalation in tensions or any negative news regarding coronavirus will boost safe-haven demand for gold. Big picture, we continue to eventually look for new highs above $1921, with resistance then seen next at $2000, then $2075/80.