Gold will be back soon

 The past week or for that matter, the month of November wasn’t that great for gold. . The price of the yellow metal plunged then from $1,840 to $1,780 last week. Actually, gold prices dropped from a local peak of $1,941.

On Friday, gold broke below the key $1,800 support level to reach 5-month lows. Gold prices plunged over economic recovery, hopes of quick vaccine availability and a smooth White House transition. These same reasons were responsible for pushing the share markets to new record highs.

Well let’s have a look over the reasons for this downside in gold- 

Covid-19 Vaccine- Well, it seems that the positive news of the vaccines eliminated the negative tail-risk related to the pandemic. In consequence, the safe-haven demand for gold declined.

Bit coins- On the other hand, the price of Bitcoin jumped recently as investors increased their risk appetites and diverted their attention from gold. 

US Election results- The elections results also reduced the uncertainty in the marketplace. In other words, the economic outlook is improving as the uncertainty clouds begin to part.

Smooth transition - President-elect Joe Biden announced the beginning of a formal transition of power from Trump’s administration to his. Biden also started to announce nominations for top positions, which served to reduce the risk that a contested election had for uncertainty among investors.

Fed Chief- there are rumours that Biden is likely to tap former Fed Chief Janet Yellen to become the next Treasury secretary. Investors know her and trust her, so they welcomed the possibility of her nomination for a key position in the new administration).

Fiscal Package prospects- Yellen, who is seen as a possible candidate for the Fed Chief post, is expected to be a great supporter of bigger government economic aid. Actually, she has for some time been calling for increased government spending to help combat the recession and has always been concerned about the labor markets, low participation rates and high unemployment. As well, as the former Fed Chief, Yellen will closely cooperate with the US central bank and will listen to the Fed’s calls for a fiscal package. She will, therefore, help sustain high government expenditure to assure that the labor market is recovering. Any for, of possible recovery has led to a downfall in gold prices. 

Top gold dealers in India believe now what we really need to focus on is the year end. There are many factors that will play a key role as 2020 comes to an end.  Gold may be bullish right now, but we have many other reasons that cannot be ignored and which can turn the table for gold. 

In the next few weeks leading up to the Christmas holidays, the market's attention will shift to how severe the COVID-19 restrictions will be, whether there will be any more stimuli this year, and what more can the Federal Reserve do to help, according to analysts. RSBL analysts confirmed that the market sentiment will be more likely influenced by news on the timing of a vaccine and concerns about a near-term intensification of Covid containment measures in the wake of Thanksgiving gatherings.

Any rise in cases will lead to a pressure on medical emergency services and will lead to further restrictions. Jobs markets have suffered due to curfew and these restrictions have been imposed in many parts of US. Further, new restrictions could harm the economic recovery, which is already struggling to recover. 

Furthermore, if we get some type of big move against the US dollar, that could have gold turning around as well. Central banks around the world will continue to throw liquidity at the markets ad this will definitely bring gold back into the market. 

The next phase of this bull cycle will rely on a lower U.S. dollar and this is really the main, key factor that will allow the price of gold to move much higher.

Gold continues to remain stronger

2020 has been an exceptional year. From uncertainties to travel restrictions to local lockdown and closure of sectors, we have seen it all. Markets have fell significantly, precious metals have rallied meaningfully. Till date the financial crisis which began in 2007-08 was considered as once in a life time event. But Covid-19 has made all these events look small. 

In the past, central banks have turned to gold – universally known as the safe-haven asset. The precious metal has helped central banks tame the impact of negative sovereign bond yields and has acted as a source of value against deflation. It has also helped central banks reduce currency concentration within their portfolios. During the Covid 19 pandemic, central banks have aggressively cut interest rates and dramatically expanded their asset purchase programmes. This has supported expansionary fiscal policies and pushed precious metals higher.

We all have seen that; gold has outperformed other assets in all macroeconomic regimes. Investors have shifted to gold amidst this turmoil. The safe haven asset has been every man’s favourite in this crisis.

In spite of these uncertain times, gold has been one of the few asset classes that has generated positive returns. And we expect this to continue further said the spokesperson from RiddiSiddhi Bullions Limited. Central banks have been consciously purchasing gold and increasing their reserves. They are using it as a hedge tool against inflation. Central banks have long been purchasing gold to reduce their dependency on other currencies within their portfolios, precisely the US dollar.

Allocation of funds in their portfolios grew larger which in turn declined US dollar foreign reserve currency allocations. The sharp fall in dollar liquidity at the height of the pandemic in March and April saw investors and official institutions focus their efforts on securing access to the world’s reserve currency. 

For countries facing US financial sanctions, gold remains an attractive alternative. Hence major countries like China, Russia, Turkey etc were all focussed to increase their gold reserve and reduce their dependency on the US dollar. 

Moreover, the extraordinary economic shock created by Covid 19 creates an indeterminate stance that also affects gold. Midway through the year, there were signs normality was returning: travel restrictions were eased at home and abroad, people were encouraged to return to work, and positive case numbers across Asia and Europe fell. But this led to a second wave of infections which is expected to be even more harmful. 

Nonetheless, the sustainability of recent price increases remains uncertain. But one thing is certain- the bright future for gold. Factors responsible for this bullish trend-

• The Fed’s  policy framework
• New domestic lockdown measures are being imposed across Europe
• The US is unlikely to reopen its borders this year
• Continued market instability
• Growing uncertainty about the future shape of the global economy
• Sharp GDP falls,
• Negative bond yields
• Growing tensions between the US and China
• A protracted global health crisis

One of the top gold dealers in India, RSBL confirmed that amidst all this uncertainty, only one thing seems certain: gold will continue to be an investor’s umbrella.