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Sunday, 7 June 2020

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?

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