The situation can't get more supportive for gold

Well to begin with, my last blog has justified its title- Will gold cross its life time high? Yes, it did and how. It managed to breach $1917 and create fresh highs at $1955 on Thursday. 

Amid profit taking and as investors’ appetite for riskier assets improved after the Federal Reserve pledged to use all the tools to support the US economy, US policymakers left monetary policy unchanged and warned that the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. Also, traders continue to monitor negotiations on the $1 trillion stimulus package proposed by Senate Republicans on Monday, rising coronavirus infections and US-China tensions.

Gold is on course for its biggest annual increase in more than a decade, driven by concern over the coronavirus pandemic and damage to economies, with gains supported by negative real yields and a weaker dollar. 

The dollar ’s slide comes as the U.S. lags most of the world in controlling the spread of COVID-19, and some expect the country ’s economic recovery to lag others, including Europe. The prospect of mounting U.S. deficits as a result of continued fiscal stimulus and ultra-low U.S. interest rates have also put the dollar under pressure.

U.S.D index at 93.6, fell more than 6-7% in the past 6 months and with pandemic and bitter U.S- China relations, there is increased historical pressure on USD to sustain its global currency status.  Riding on the dollar weakness, gold has managed to rise by $500 in the past 5-6 months. December contract hit $2000 an ounce and thereafter we had a massive profit taking to drop by $75, though it showed recovery again. 

The much awaited FOMC meet, proved to be more or less neutral for gold. Fed’s chairman Powell was vocal in saying that their efforts on to every possible support as and when desired for the ailing US economy. So, this is a clear sign that US economy is going to see more plunging as Covid related issues are hurting the growth very severely. 

We are already in a bull run that has started swiftly since the past 6 months and is expected to continue for long, a fact very strongly believed by the bullion king of India. There could be a correction of $70-$80. All the top gold dealers of India are convinced that if the global economic scenario continues to remain weak then the sentiments continue to remain bullish. Gold is also rising because investors are seeking havens as the virus ravages the global economy. 

The situation can’t get more supportive for gold. The low interest rates will give you a benign dollar and a benign dollar is very helpful to gold prices because it makes it much more affordable globally.

Gold continues to an investors favourite

As we all know, gold bas outperformed many assets in the current year. Gold is up about 19% so far this year, as lower interest rates and central bank stimulus have supercharged existing upward momentum for the precious metal.

According to many analysts, the one factor that will continue to drive gold prices higher in the near term is further weakness in the U.S. dollar as the current embarks on a new downtrend.

Gold is typically seen as a “safe haven” asset in times of uncertainty because it is less volatile than other investments, like stocks. What’s more, the metal moves inversely to the U.S. dollar, meaning that when the greenback moves lower — as it has done lately — gold moves higher.

Gold is benefitting from the geopolitical situations and the pressure that has been created worldwide.

Globally, gold prices edged lower on Monday due to a stronger US dollar, but worries over surging Covid-19 cases and its impact on the global economy kept the safe-haven metal above the psychological level of $1,800 per ounce.

Though gold was struggling to keep momentum above $1800, several analysts as well as the top gold dealers in India believe that market has a lot of upwards potential and support for gold.

The gold market is consolidating above $1,800 an ounce and although bullish sentiment has fallen from record levels, market analyst and retail investors remain bullish on prices next week.

Major economies have been struggling on the path of development and are constantly announcing new stimulus measures to support the economy. The virus continues to weaken the global scenario, but U.S and Europe have been trying to pump in fiscal stimulus to keep the growth going. This step will weigh on the U.S. dollar and support gold prices.

Although there is strong sentiment in the marketplace, some analysts and industry insiders from RSBL have noted that a correction would be healthy following break above long-term support.

U.S markets are languishing for the past 2-3 days and with no major economic data expected till Wednesday, gold and silver are expected to maintain the same stance- mild pull back and positive momentum.

Small dips can be considered as an opportunity to add gold to your portfolio confirms Mr Prithviraj Kothari of RSBL

The precious metal has reached a new range of $1,750-$1,830 in July, up from the May-April range of $1,668-$1,750, If gold break the upside, then $1,850 and even $1,900 is possible.

Right now, gold is consolidating but we can see higher prices next week as major data is expected to be released after Wednesday.

·         U.S House price index

·         U.S. existing and new home sales

·         U.S latest jobless claims

·         U.S Manufacturing PMI

All the above-mentioned data is important and needs observation as it will give investors an idea whether we are seeing an actual recovery or not.

Currently gold prices are benefiting from

·         loose monetary policy,

·         low real yields,

·         record inflows into exchange-traded funds

Gold is expected climb to an all-time high in the next six-to-nine months, and there’s a 30% probability it’ll top $2,000 an ounce in the next three-to-five months.

If gold can break the $1,829 resistance, then the precious metal could be heading for its all-time highs.