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#1 26-05-2020 11:24:03

Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 2831

Gold: where are prices heading?

Gold: where are prices heading?

Gold is more than just a commodity for traders aiming who want to diversify. Considered a safe haven in times of crisis such as today's Corona situation, its role is to offset the declines of other markets (shares for example).

The precious metal has been rising since last summer. Following a long period where it was consolidating, it has nearly always remained above $1,350. Is it crazy to think that its price could eventually hit $2K?!

Understanding gold prices

When the virus situation started, its price tumbled. This was odd considering its safe-haven status. In the end, it was a temporary move that lasted until the United States' Federal Reserve opened USD swap lines and provided liquidity to the financial markets. For this reason, the price of gold is vulnerable to a decline in the stock market as it leads to a strengthening of the USD.

However, the demand for gold has its own set of rules. Overall demand is affected by jewelry needs, central bank demand, industrial demand and traders' appetite for it.

The recent increase in gold purchases by Exchange Traded Funds, however, suggests a strong upward movement in gold pricing.

Gold holdings from 2007 to 2020:

Massive liquidity injections by the world's central banks are keeping a floor under gold's rise. In addition, renewed tensions between the U.S. and the Chinese could provoke even higher prices.

Also, the price of gold is directly correlated with U.S. interest rates. With the lowering of these rates over the past decade, gold could find buyers with each new decline.

The collapse in oil prices is affecting inflation expectations, resulting in lower nominal rates - meaning that interest rates will have a hard time falling in the coming year. However, the current virus situation has taught traders to watch out for unusual market activity. This was exemplified in April with the negative crude oil prices - something which has never before occurred.

All things considered, it is pretty much inevitable that gold is going to eventually hit the $2K mark. It's just a matter of time...

"Anything worth having is worth going for - all the way." - J.R. Ewing



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