The scene is set for gold
Posted on Jun 29, 2020 at 12:00 am
Last week, gold gained significant momentum as its prices pushed to the highest level in eight years.
Gold went through another volatile week with an attempt at breaching the $1,800 an ounce level. The yellow metal wrapped up a very exciting trading week after seeing prices hit 7.5-year highs and climbing to $1,796.10 on Wednesday.
If gold continues to rally at this speed then it will soon reach the significant level of $1900- its life time high that it achieved in 2011. This is a very significant level for Gold because it would be very close to breaking the 2011 all-time high level near $1917.90. As gold creeps higher because of perceived risk factors in the global markets, once Gold price levels break above $1850, then the rally to levels above $1900 is almost certain to drive investors into the precious metals markets at a much faster pace.
They say history repeats itself- the current situation that is being witnessed is more or less similar to what happened in 1976. In early 1976 through 1981, capital markets were suddenly awash in credit and precious metals rallied more than 700%.
Similarly currently the US Fed and global central banks are pumping financial stimulus into the markets (in the form of capital and QE functions) in an effort to support the capital markets and financial sector.
So now we can think where precious metals are heading.
Now this uncertain and risk-ff sentiment in the market has been helping the yellow maintain stay firm on bullish sentiments. Though the strengthening dollar is taking away some shine from the yellow metal, but rising Covid infections is dampening this dollar gold effect.
It was the rise of infections from the coronavirus in the United States and globally that elevated concern that the pandemic could force many countries including United States to roll back the reopening. Last week, the total cases in the US reached 2,374,282, with casualties reaching 692 on a single day, summing it up to 121809 deaths in total.
A number of states including Arizona, New York, Texas and Florida have had the largest number of new cases reported, putting US on the front with the highest number of Covid cases and deaths. As of early June 26, the U.S. has recorded 2,422,310 cases and 124,416 deaths.
Concerns around how this will impact the U.S. economic recovery has led to another major stock market selloff on Friday, pulling down equities.
Though uncertain recovery will prove to be good for gold, but a steep rise in Corona cases can hamper gold’s growth as ultimately it comes to inflation expectations. Hence gold also dropped along with equities and failed to cross $1800.
But the future is bright for gold. And we are not claiming this because of the pandemic. Apart from that there are several reasons that can set the prices high and help gold in crossing its life time high-
- U.S. Presidential elections- the U.S. presidential elections will play an important role in shaking gold prices.
- Q2- There is a lot of pressure around the economic recovery in the U.S., which points to a higher price for gold going forward
- Data-biggest market moving day is likely to be Thursday with the U.S. employment report for June and factory orders for May both being released. With all states now experiencing some form of reopening, we should see another sizeable pick-up in employment, as workers return to their jobs, but still many remain unemployed and hence the jobs report won’t be that strong. Other important data slated for release- the FOMC meeting minutes from June, ADP nonfarm employment change for June, and the ISM manufacturing PMI for June. , U.S. pending home sales and June’s CB consumer confidence
Analysts believe that economic numbers coming in from US won’t be that appealing, its time to buy gold as prices is expected to rise. We all know that since ages gold has been considered as a store of value. Currently, gold is undervalued as there are massive bubbles in asset markets and central banks continue to print money, which supports these bubbles. This is an unsustainable situation; and when the bubbles burst the gold price will rise.
The scene is set for a price appreciation towards levels last traded in 2012. All eyes should be on the psychological $1800 mark.