Gold Is On The Move

So far in 2020, the yellow metal has been the best market to trade. Buy the dip has been the best possible scenario. We still have that scenario playing out. Gold is on the move. Risk aversion is pushing up gold prices. Weekend news showed that (the corona virus) is still spreading in many countries across the globe and this could impact economic activity and market sentiment.

As concerns about the impact of corona virus mount, investors have boosted holdings in exchange-traded funds backed by gold to the highest since November, with the assets now less than 25 tons shy of a record. Adding to the momentum, the Federal Reserve is gearing up for its first rate-setting meeting this year, where it’s expected to maintain easy monetary policy, and the World Gold Council will offer its assessment of global demand trends.

Gold jumped 1% on Monday to a near three-week high as growing concerns that the corona virus outbreak could impact the global economy pushed investors to safe havens.

Spot gold was up 0.8% at $1,582.41 per ounce during Mondays trading hours; having earlier touched it’s highest since Jan. 8.

The widely spreading corona virus has prompted the Chinese authorities to introduce travel restrictions across 10 cities, affecting up to 40 million people according to some reports, in the middle of the country’s most important holiday season, the Lunar New Year. Even Shanghai's Disneyland, one of the country’s most popular tourist destinations, has been shut.

Fears of a global contagion from the corona virus has plummeted stock markets worldwide. There’s nothing like a global contagion to get gold buyers to pile back into the safe haven. The yellow metal hit two-week highs on Friday, creeping toward the $1,580-per-ounce level targeted by gold bugs on worldwide fears over the economic fallout to the China-originated corona virus.

The death toll from the corona virus outbreak has risen to 81 in China, with 2,744 confirmed cases, and the virus has spread to more than 10 countries, including the U.S. and France.

Despite the strength of the greenback, the bullion price is taking advantage of this uncertain situation.

Markets are focused on news around the deadly corona virus. There will clearly be a significant economic impact, centered in China. A key question is the time it will take for the virus to be contained and one can only speculate at this stage.

Investors will be watching the U.S. Federal Reserve’s first policy meeting of this year on Jan. 28-29, where it is widely expected to keep rates unchanged.

In recent years, high interest rates, risk aversion stemming from the downturn in global trade, and support from earnings repatriation have supported the US dollar.

But over the coming years, US growth and interest rates will be closer to those elsewhere in the world, and uncertainty ahead of the US election and the waning effect of tariffs suggest a weaker greenback is likely.

The Fed at its monetary policy meeting on Wednesday use the same kind of cautious language heard by the ECB and BOC, then that could be the rocket fuel gold needs to sustain gains above $1600 per oz.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

A Breakout In Gold Is Expected Soon

The gold price rose by 39% from the low in 2018 to its peak this month, as it jumped on the news that the US had assassinated an Iranian general. The subsequent retreat in the gold price shows that individual events do not usually move the price for long. However, a number of factors have combined to encourage safe-haven purchases of gold. Increasing political and economic uncertainty, more monetary easing from the Federal Reserve, falling bond yields and huge quantities of negative yielding debt have all played a part.

This week too we saw gold being influenced by an array of events. Gold prices rose to their highest in more than a week on Monday, after a missile attack in Yemen over the weekend strengthened geopolitical concerns and boosted the metal’s safe-haven appeal, while buying ahead of the Chinese New Year also lent support.

Spot gold was up 0.3% at $1,560.89 per ounce during Mondays trading sessions, after touching its highest since Jan. 10 at $1,562.51 earlier in the session.

The market is also going up because of central bank buying, geopolitical risks such as Yemen missile attack - all these factors are supporting gold.

And since Gold is considered a safe investment in times of political and economic uncertainty, an encouraged buying of the yellow metal was witnessed.

Geopolitical tensions around the world have risen and further eroded the fundamental outlook which is already burdened with unusually-high uncertainty. Investors may therefore be particularly sensitive to comments from officials that have implications for monetary policy.

After the US and Iran stepped back from further confrontation, the gold price has given back some of the gains made following the US missile strike that killed an Iranian general. A more time-consuming correction is possible before gold attempts to reach new high.

We all know that a number of factors combined have resulted in safe haven purchases for the yellow metal; similarly, a number of factors will be the reason behind a rally in gold prices that is expected to happen soon.

TRADE TENSIONS- EU-US trade tensions may soon begin to escalate following a warning from the EU’s new trade chief Phil Hogan that the EU intends on retaliating with tariffs over WTO dispute with Boeing. Relations between Washington and Brussels have been put on the backburner, though it may become the new trade war of 2020. A revived cross-Atlantic trade tiff would further undermine global growth and may push gold prices higher.

COMPANY GAINS- A number of major corporations will be releasing their earnings this week, including giants such as Netflix and IBM. Despite equity markets reaching record-breaking highs, earnings reports are expected to be relatively flat. The worst-than-expected prints could make investors turn to the Fed in hopes that the poor data will make them more inclined to further ease credit conditions. Gold may rise on this far-reaching hope.

INDUSTRIAL DATA -A flow of PMI data from the US, France, Germany, Euro zone, UK and Australia will also be published this week which may reinforce slowdown fears and inflate easing bets. Gold prices may subsequently rise alongside demand for anti-fiat hedges. Given the fundamental risks laying ahead in 2020, the tepid stabilization in PMI may be less of a turning point and more a moment of calm before the prior trend resumes.

FED AND INFLATION- one of the US Federal Reserve’s two major goals is to maintain the inflation rate near 2%.  Because, you know, high inflation is bad. If the inflation rate went up to 4, 5, or 6%, suddenly a lot of people would find themselves in the poor house.  Basically inflation destroys savings because the purchasing power of the dollar you saved years ago is now greatly diminished.

History shows that gold prices rise to keep pace with inflation over time.  So if we move into a period of higher inflation, we can expect gold to go up.

Now, Gold traders will have to observe critical ranges for a breakout. If gold crosses $1563- $1565 then it will break out for big. So be tight, observe gold to take best advantage of the current situation and similarly in the local markets too it is expected cross Rs.40300 per 10g, whenever the breakout is witnessed.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.