Gold strikes a balance

The yellow metal has fallen around 0.3% this week. But still sentiments remain positive. Growing concerns over US China Trade war, escalating Sino-India tensions along with the ongoing Covid widespread- all these together have helped gold in maintaining its price range and has further supported positive sentiments for the same confirmed RiddiSiddhi Bullions Limited.

On one hand gold witnessed buyers at $1710 -$1750 levels, while it also some jumping into the selling bandwagon. Gold seems to have attained a balance between geopolitical and COVID-19 concerns on one side, and economic recovery hopes and dollar strength on the other.

There are growing concerns that the US-China Phase One trade deal is about to get ripped-off U.S. President Donald Trump on Thursday renewed his threat to cut ties with China, a day after his top diplomats held talks with Beijing amid souring relations. China has told state-owned firms to halt purchases of major US farm products, after Washington said it would eliminate special treatment for HongKong.

While this was on the global front, on the local front we saw widespread protests in the United States over racism. Furthermore, concerns of another wave of coronavirus cases has created panic. More than 8.38 million people have been reported to be infected by the coronavirus globally with China reporting 32 new virus cases on Friday, 25 of which were reported in the capital city Beijing.           
 
A surge in fresh infections in several U.S. states and the imposition of travel curbs in Beijing to stop a new outbreak have renewed fears of a delay in economic recovery as countries reopen after coronavirus-induced lockdowns

Adding to this were, simmering geopolitical tensions between North Korea and South Korea, and India and China also offered some support to bullion , which is often used as a safe-haven investment during times of political and financial uncertainty.

Further, in UK too gold was seen moving upwards. There was decent stimulus being pushed into the market wherein  the Bank kept overnight UK interest rates at their new record low of 0.10% and also approved another £100bn ($124bn) of quantitative easing, taking its total holdings of government bonds to £745bn – equal to one-third of GDP and 42.5% of the UK state's current outstanding debt in issue.

In the US too, negative growth sentiments was supporting gold. The Federal Reserve is targeting 2% inflation and has pledged to keep rates near record lows until the goal is achieved. This will lead to a lift in gold prices. Looking at the dollar, we saw the greenback falling to its lowest since mid-March, further supporting bullion prices the bullion king of India stated.

News coming in from various parts of the world, which is mostly negative on the geo-political and economic front, will definitely prove to be positive for gold and hence we can expect fresh highs for the yellow metal.

Bullish vs Bearish sentiments for gold

Recession and pandemic have been good supporters for gold this year. Gold has advanced 16.7% since March 2019. Simultaneously the dollar has dropped 6.8%

All this while, gold continued to find additional support from some of the bearish factors including concerns over a second wave of infections, and raised geopolitical uncertainty.

This week too, gold found support over Federal Reserve statements. Fed ruled out any rate hikes for the next couple of years. On Wednesday, the Fed announced that it is keeping its key interest rate unchanged at a range between zero and 0.25% while signalling no rate hikes through 2022. The Fed also said it expects U.S. GDP to contract by 6.5% this year.  Simultaneously it boosted expectations that [quantitative easing] will be in operation for the time being.

In response, gold prices rallied, reaching slightly above $1,750 an ounce on Thursday while equities saw major losses. This move benefited gold as an accommodative monetary policy is negative for the yields and for dollar, while positive for the yellow metal hence gold managed to pull through the mid-range resistance band of $1700/$1725.

Any form of strong financial stimulus is made with the intention of boosting the economy. Now given the situation, the market is once again divided into bears vs. bulls for gold.
The ones, who are bearish, have cautioned that gold will remain in a tight range. Currently it has been sustained by stimulus measures world over and hence it will require a very strong influencer to pull it back into a higher range.

The Fed’s extreme money printing igniting these unstable stock-market heights is worryingly inflationary, making upping gold portfolio allocations essential.  This ongoing capital shift is likely to keep pushing gold higher. RiddiSiddhi Bullions Limited is positive that gold prices are likely to trade higher for the most part of the year.

But still many investors continue to remain in a dilemma about portfolio diversification per se gold.

Now for the ones who are bullish believe that gold is being constantly supported by the current geopolitical crisis. There has been news that the number of U.S. coronavirus infections were rising, with recent reports indicating that Arizona and Texas are showing increased cases. Moreover, worries of a new wave of COVID-19 cases clouded hopes of economic recovery.

Just when China was grounding itself towards economic recovery, it once again saw fresh Covid cases resurfacing. After weeks with almost no new coronavirus infections, Beijing has recorded dozens of new cases in recent days.  And if this was not enough, US too witnessed Covid hospitalization in record numbers.

Further, The World Bank released its latest economic outlook and global GDP which is now predicted to fall by 5.2% this year. The recession could be the worst since the Second World War. Certainly, lockdowns are being eased and central banks and governments have pledged huge sums of money to support their economies. However, the economic recovery will take quite some time and even a slightest onset of a second wave of Covid infections, will once again create a panic like situation believes Mr Prithviraj Kothari of RSBL.

This comes amid enormous federal rescue efforts, with the Treasury Department aiming to borrow $3 trillion to cover the tab. To bolster the government’s campaign, the Federal Reserve intends to buy enormous amounts of the new Treasury bond supply. This manoeuvre is called quantitative easing (QE), which also is aimed at holding down interest rates.