Geopolitical crisis still remains on the cards for gold

Gold has been a major beneficiary of a weak dollar and low US interest rates over the last three weeks and this looks likely to change in the short-term. The yield on the 10-year US benchmark is nearing 1%, up from 0.65% a week ago, dulling the appeal of the precious metal, while the US dollar basket may have found a temporary base around 96.50 after having fallen by four big figures since mid-May. Bullion has declined about 3% last week, on track for its biggest fall since the week ending March 13.

Gold prices dipped more than 2% on Friday as investors’ hopes of a rebound in the global economy got a boost from stronger-than-expected U.S. non-farm payrolls data, reducing demand for safe havens.

RiddiSiddhi Bullions Limited opines that a record surge in US employment on Friday sent gold into a tail spin and back to lows seen at the beginning of May. Just over 2.5 million jobs were added in May compared to market expectations of 8 million lost jobs, the largest month of job creation since the data series began. Last month the US economy lost just over 20 million jobs. Today’s positive data boost added to an already upbeat market tone and helped push gold back into the early $1,680s, its lowest level since May 2.

The May payrolls report confounded economists who had predicted a job loss of 8 million in May as the coronavirus kept parts of the U.S. economy closed for a third straight month.

The report also jarred with separate data released a day earlier by the Labour Department, which said it received weekly unemployment claims for the first time from 1.9 million Americans, bringing to nearly 43 million the number receiving jobless insurance since the Covid-19 hit home in March. Gold prices jumped 1% on Thursday, reacting to the jobless claims numbers.

We had significantly stronger-than-expected U.S. payroll numbers - an increase of 2.5 million versus an expectation of a decline of 7.5 million - that 10-million swing has brought forward expectations of the economic recovery in the United States.

A kick-start to another rally in the gold price remains elusive. The market’s confidence that the most acute stage of the pandemic has passed in many countries has seen risk appetite improve. With investors now betting stimulus measures will bridge the gap to more normal growth. RSBL is positive and has hopes pinned to an improved economy.
The central bank has injected massive stimulus and cut interest rates to near zero to cushion the blow from the coronavirus pandemic. The Federal Reserve, the U.S. Treasury and Congress have jointly approved and disbursed trillions of dollars in loans, grants and outright aid to businesses and individuals in recent months because of the Covid-19-triggered economic downturn.

But investors still remain bullish over the medium-term. Prithviraj Kothari and many other top gold dealers in India believe that Gold might not get much more support from the Fed, but geopolitical risks, second wave concerns, and an eventually weaker U.S. dollar should keep the longer-term bullish outlook intact The macro backdrop is challenging, despite market confidence in the trend towards normalised growth. The expansion of central banks’ balance sheets shows no sign of abating, while geopolitical tensions escalate.

The otherwise safe-haven known as gold is rallying right alongside an equities markets surprisingly chock-full of momentum even as protests sweep the U.S. and deaths from COVID-19 continue to climb.

Some analysts, however, remained optimistic that gold would regain some upward momentum in the near-term despite the risk rally in stocks.

The reason being uncertainty- geopolitical issues and trade tensions (in the U.S) still remain on the cards and for the longer term these factors will definitely influence gold prices positively and those who strongly believe this and are still favouring gold are expected to benefit in the long run.

Gold - A simple investment in complicated times

As the last decade draws to a close, gold has once again demonstrated its safe haven status  and alerted the keen observer that the general situation in the financial markets is about to change fundamentally.
Gold is a clear balance to stocks, bonds and alternative assets for well-balanced investor portfolios. As a store of wealth and a multi-faceted hedge, gold has outperformed many major asset classes while providing strong performance in both rising and falling markets. Bullion dealers in India are optimistic about the continued run of gold as a safe haven for investors.

Gold can add value to your portfolio in more than one way-

• It gives long term returns
• When times are uncertain , gold acts as an effective diversifier
• It is very high on liquidity 
• It strikes a perfect balance and improves overall portfolio performance

The market continues to struggle with the elevated level of market optimism versus the real economy, creating a psychological mismatch. And while the anarchy is the US street is likely to be a short-term phenomenon believes Prithviraj Kothari from RSBL.

Gold was supported over concerns about the unrest in the United States and at the moment appear to be weighing on market sentiment along with rising tensions between the world’s top two economies.

Gold pared gains on Thursday, having risen 1% earlier in the session, pressured by an advance in Wall Street, but escalating tensions between the United States and China kept the bullion supported. Spot gold rose 0.2% to $1,712.35 per ounce during Thursdays trading hours.

Gold prices were, however, supported by fresh signs of the economic blow from the coronavirus, as well as brewing U.S.-China tensions with the Trump administration looking at options to punish China over its tightening grip on Hong Kong.  We're seeing tensions increase between U.S. and China. We see the market froth still with this bevy of negative economic data and that's clearly supportive for the gold market said the bullion king of India.

Protesters have flooded the streets in the United States over the death of George Floyd in police custody, in a wave of outrage sweeping a politically and racially divided nation.
The closely packed crowds and demonstrators not wearing masks have sparked fears of a resurgence of COVID-19, which has killed more than 101,000 Americans.
Rioting in major US metropolitan neighbourhoods got pretty gnarly over the weekend.

Adding to it were the underperforming jobless numbers coming in from the US. The latest U.S. unemployment benefits data held above 2 million last week for a 10th straight week, signalling a deeper economic hit from the pandemic. Hence investors believe that more stimuli is expected from the Federal Reserve and other central banks
           
Large stimulus measures tend to support gold, which is often considered a hedge against inflation and currency debasement.
 
Meanwhile, in Asia, China’s state media and the Hong Kong government lashed out on Sunday at U.S. President Donald Trump’s pledge to end Hong Kong’s special status if Beijing imposes new national security laws on the city.

Gold is often used as a safe store of value during times of political and financial uncertainty.
Geo political risk remains supportive amid a plethora of bullish for gold themes while anarchy in the street in the US could dent the nascent recovery. But gold investors are also taking more that early re-opening states are seeing a rebound in new cases.

On May 30, California increased 3273 claims, the highest one day increase ever. Texas increased in 1714 cases. On the margin, the United States: three-day growth of infection numbers increased to 4.2%, the highest in 1-week (vs. 3.4% three-days ago).

Gold rallied right out the gate, going higher as anarchy in the streets is not only threatening to derail the re-opening optimism but could severely dent President Trump’s approval ratings, which will heighten US election risk and could drive more demand for gold.

Gold has come down off its recent highs to trade somewhere in the middle of the range it’s been in since mid-April. This has caused many traders and investors to begin to question whether they should start looking for dips to buy, or whether there is a further downside in store for the precious metal. We’re now halfway into the year and barring any other significant global events in H2 it’s almost certain that 2020 will be remembered as the year of the virus. The question remains, though, will 2021 be the year of the recovery?