Gold has been on a tough ride since the start of the year 2020. To be more precise, since August 2020, when it pulled below its record highs of $2000 and later wandered there for a while before entering a significantly negative zone.
The main reason for its fall was the launch of vaccines worldwide over signaling global recovery. There was a point when gold raked. At one point, the price of gold hit a near 11-month bottom at under $1,674.
Similarly, the month of June 2021 was not that great for the yellow metal as well. The previous three weeks were woeful for gold as it cascaded from five-month highs of just over $1,919 to a seven-week low of just above 1,761 at one point. That was a loss mourned by the top gold dealers in India of almost $160 or more than 8% in just four weeks! And indeed, with all the FedSpeak and weaker economic data throughout the week, Gold - the recent decline for which was well overdone - finally found some footing, and the yellow metal soared a little high.
Gold finally clinched on Friday for its first weekly gain in four days and since its unceremonious fall from $1,900 levels. But the difference was hardly something for the yellow metal to boast about.
Gold was again up on Monday morning in Asia as investors digested the mixed signals from the U.S. Federal Reserves on monetary policy tightening after the release of tame inflation data. The main question about the temporary nature of the current inflation rate caused the yellow metal to close higher on the day and on the week, which is the first occurrence of a higher weekly close for gold in four weeks.
We saw a recovery in gold, over surging covid-19 cases across large parts of Asia. On one hand, this recovery weighed in negatively on the investors' sentiments and a relatively stable dollar on the other.
Viral cases were seen in Australia, Malaysia and probable a new variant or turd wave was expected in India. The delta strain has exploded high and hence, new restrictions and lockdowns are being expected in some parts of the world.
In addition, Indonesia is a key emerging market that is fighting hard to tame the growing viral cases while a lockdown in Malaysia is set to be pushed forward, further triggering gold bugs to hold support around the $1,780 per ounce price levels for the near term.
Inflation - Investors also continued to digest inflation data released by the U.S. during the previous week. The core personal consumption expenditures index grew a smaller-than-expected 0.5% month-on-month in May while growing 3.4% year-on-year. Gold prices rose as much as 0.8% after the release of the data, the central bank’s preferred inflation measure.
Consequently, gold bugs are rallying over monetary and fiscal stimulus support globally in response to the world’s most destructive pandemic, thereby boosting the bullion asset’s value despite an uneven pace of recovery between regions.
Gold will likely continue to stabilize going forward as most Fed Chair Powell’s policymakers agree with him that inflation will be transitory.
Investors should think about the long term and pay truly little attention to what is happening in the short term. Looking at the near-term data, gold prices might plunge a little bit more. However, the lower the price of the precious yellow metal drops, the better a buying opportunity it becomes. Moreover, we cannot ignore the gold buying spree undertaken by the central banks. The central banks and the big buyers remain in the market. The day when central banks will say that they hate gold and start offloading from their reserves will be the day that the gold investors and gold dealers in India will need to get worried.
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