Gold has always been a safe haven during times of financial turmoil and the recent global stock market meltdown triggered by the coronavirus hasn’t been much different.
A quick gold price analysis shows how gold futures have started to go up sharply since February 12. Since then they have been experiencing significant volatility after reaching their first post-coronavirus peak of $1,676 (GC1:COM).
So far, gold futures are yielding a 7.86 per cent return year-to-date while, on a long-term perspective, gold’s 12-month returns are nearly 27 per cent based on the price of COMEX gold futures.
Over the last week, the price of gold surged by 10 per cent. Is it a temporary spike or a start of a movement towards fresh highs? Let’s take a closer look at Gold price analysis and watch a short video by Capital.com market strategist David Jones.
Gold price analysis (YTD & 12-months)
Gold prices started the year in an upward direction until breaking their previous September 2019 peak by the end of January. After that, the price went down a little until February 4 when the price touched a previous support level and jumped up for 20 days in a row to reach its highest level so far this year at $1,676.60.
Since then, a gold chart analysis indicates how prices have been on a rollercoaster trip, jumping up and down between sessions, even though this gold price volatility has not yet sent the price below its December 2019 support levels.
Meanwhile, gold futures (GC) have ended yesterday’s session at $1,645.50, trading at a level that’s 26.2 per cent higher than their 52-week low, and only 3.6 per cent lower than their 52-week high.
Today’s gold prices can only be compared to 2011 prices, back when gold was the preferred safe haven during the aftermath of the global financial crisis of 2007-2008.
Based on the current gold uptrend, there’s not much to go until those 2011 levels are reached once again and, based on gold chart analysis, the next plausible resistance level would be around $1,800.
Gold price update and news
TD’s Head of Global Strategy Bart Melek has shared his views on what could happen with gold, considering that gold investors are stepping into unknown territory as gold price surges.
Melek has valuable insight into what may be next: “A move toward $2,000 is also a distinct possibility into 2021, as the global economy normalises, monetary contentions remain loose while fiscal deficits surge.”
Moreover, Melek believes that there are enough fundamentals behind the current price of gold, some of which are somehow related to the coronavirus effect.
Melek indicates that “any selloff in the near term should be considered as temporary, as the previously discussed macro factors, and the fact that some six million oz of annualised mining gold production is shut down due to COVID-19 measures and logistical issues making physical shipments extremely hard, will likely serve as an additional catalyst moving the price toward $1,800”.
On other gold trend drivers, the $2 trillion economic stimulus package pushed by the White House and approved by Congress is also big news for the gold market, as it indicates the potential willingness of the Fed and other major central banks to maintain or even further expand their quantitative easing cash injections.
These QE programmes are designed to buy financial assets to bring a certain degree of stability to the financial markets and protect the US economy from a large-scale recession triggered by Wall Street’s poor performance and unstable credit markets.
Gold is among the assets that these central banks may decide to buy and this could ultimately result in more “gold prices go up” news.
Trade Gold Spot CFD
Right now, Main Street bad news may be Wall Street’s good news. A deterioration of the global economic landscape is the strongest indication that central banks will have to step in to save the day – along with governments, which are already inclined to push economic stimulus packages to prevent a recession in their domestic economies.
On a gold price update side note, the Dow Jones US Gold Mining Index (DJUSPM) currently shows a five-day gain of 16.8 per cent along with 32.4 per cent 12-month gains as investors are possibly outweighing the effect of higher gold prices against current production shutdowns in their assessment of the future performance of companies in the industry.
Gold price forecasts
While there are certain fundamentals behind the idea of record-level gold prices, each of them has to be analysed individually to reach a conclusion about how possible it actually is for gold to set a new mark in 2020.
Driver #1 – The coronavirus effect
Indisputably, the widespread coronavirus outbreak is today’s major force influencing the behaviour of the global financial markets.
In this regard, virus containment could result in a positive economic outlook, even though this may not be the best news for gold.
In contrast, an out-of-control virus spread in the United States could signify that the $2 trillion economic stimulus may just be the tip of the iceberg of what the White House will have to do to bring stability to both Main Street and Wall Street.
Under that scenario, gold prices may skyrocket, as further fuel will be brought on by the unlimited guns of the Federal Reserve.
Driver #2 – Quantitative easing (QE) & economic stimulus packages
While we have mainly focused on the US, there are many other countries contemplating or already moving forward with their own economic stimulus packages, including France, Germany, the UK and other developed countries.
This means that larger quantitative easing cash injections could be in motion on a global scale, which would result in higher pressures on financial assets, including gold.
Driver #3 – The market’s perception regarding gold as a potential safe haven
Gold has been perceived as a safe haven by Wall Street, as real estate is seen as such by Main Street.
While this has been the historical pattern, the coronavirus seems to be modifying most of the market’s preconceptions and investors could ultimately rely on other assets instead of gold to protect their holdings.
If the opposite is true, and gold continues to be perceived as a refuge, it is likely to continue surging as long as there’s economic and financial instability in the picture.
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