Gold continues to strengthen in second half of 2020

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. Whether it were smalls MSEs or giants like RSBL businesses were hit completely and so were the lives of hundreds of millions of people who 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. RiddiSiddhi Bullions Limited agreed with the numbers projected by a survey of Bloomberg. 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, as per the 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

According to the bullion King of India, 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.

Where everything else is falling, Gold seems to pretty tempting

History has proved time and again that following major factors have always sent triggers and brought about a rally in gold prices

• Financial market cyclicality 
• Economic crisis.
• Geopolitical stress.
• Monetary instability.

Any one of these four factors possesses the power to drive gold prices here. But today, we don’t have to choose — all four are combining to trigger the gold-buying impulse.
One virus was enough to trigger all of the above factors.

Furthermore the extraordinary 12-month gold-price bull run shows no sign of ending. Despite predictions of a bubble set to burst, the yellow metal has risen by 36% during the past 12 months says Bullion king of India. Gold prices ended higher on Friday as testiness between the U.S. and China fed risk-off sentiment, drawing investors into assets considered to be havens, including government debt and the Japanese yen.
Further to the above factors, even drivers of money flow into safe haven assets and also support gold. Lately, the gold has been moving majorly due to the following reasons-

US-China tension escalation- The Wall Street Journal on Thursday reported that U.S. senators were introducing a bipartisan bill that would sanction Chinese officials and entities that enforce the new Hong Kong laws, and penalize banks that do business with the entities.
With the crisis in Hong Kong picking up, stock markets in Asia and the U.S. declined, resulting in “safe haven buying for both gold and silver.

The U.S. has threatened a very harsh retaliation if China challenges Hong Kong’s autonomy, which then could lead to U.S. implementing more tariffs. Those tensions aren’t likely to influence gold for long as the market tends to overreact once news hits, but still gold prices are bound to go up regardless of that giving hope to the top gold dealer in India.

Concern of second wave crisis drove money flow into safe haven assets- the immediate reason gold is finding support came from testimony to the Senate Banking Committee earlier this week by US Treasury Secretary Steve Mnuchin and Jerome Powell, chair of the country’s central bank, the Federal Reserve. According to the Seattle Times, Mr Mnuchin emphasised re-opening American workplaces to get the economy moving again, while Mr Powell suggested more stimulus measures may be needed which is why central banks have been pumping money into the markets.

Supply demand- This time around, the coronavirus is causing interruption on an unprecedented scale, including the supply of physical gold says RiddiSiddhi Bullions Limited. Three of Europe’s biggest gold refineries are based in the Swiss canton of Ticino. On March 24, cantonal authorities ordered all three refineries to close.

This perfect storm of a strangled supply and soaring demand has led some analysts to speculate that gold prices could reach an all-time high in 2020 – over $1920, which the current high is reached in August 2011.

Except, there’s plenty of evidence that this time is different, and gold could even outperform its previous rallies during market uncertainty. Consider that during previous major stock market crashes, such as the 2008 financial crisis or Black Monday in 1987, there were no other externalities affecting the price of gold, which was purely driven by supply and demand

However, analysts said continuing plans to reopen economies that have been frozen by the COVID-19 pandemic and hope for remedies for the virus have limited the upside in precious metals, sending gold lower for the week.

There was a slight slip on Monday morning as gold prices price lost 1.23% in early trading to stand at $1,735.25 an ounce. But the pattern of recent months has been decisively upwards, making it difficult to predict further for the bullion dealers in India.

The economic unease caused by the COVID-19 situation has prompted many investors to consider moving their assets into gold. But with the masses all thinking the same thing, what’s the market outlook for the yellow metal?
Interest in the metal has been growing recently in light of the pandemic as one of the safest and most resilient assets for investors. Russia, however, started to build up its reserves long before the crisis emerged.

Russia has become a saviour of the global gold markets as the pandemic has spurred abnormally high demand for the precious metal while it has at the same time also crippled companies' ability to produce gold in the amounts requested by market players

During that fateful mid-March week, gold prices also took a beating as investors fled to liquidate all assets. The price of one troy ounce of gold fell from a high of above $1670 on March 9 to below $1470 nine days later.
.
If you’d bought gold back in 2018 when it was trading around $1200, that represents returns of 50%. Even at the current prices, the all-time high would provide a return of over 12%. In a market where everything else is falling, those numbers appear to be pretty tempting says Prithviraj Kothari RSBL.