Gold: where are gold prices heading?

Besindes being considered a safe haven, gold is also known for being a volatile asset. In general, this market averages about 850 pips per day, which is extremely volatile compared to other well-traded markets. However, in March, gold reached levels not seen since the 2009 crash and experienced significant levels of volatility.

As a backup plan for most traders, gold generally increases in value when equity markets are in sell-off mode and there is some form of market uncertainty. However, when markets are bullish and rising, gold prices fluctuate, as investors do not see the need for a "plan b" and seek to trade stocks and indices for the longer term.

After recent declines in the stock market, gold has climbed to $1,699 in just a few days, after consolidating in the $1,519 to $1,569 range in recent months. Today, gold is trading in the $1,590 range, and many are looking to gold to see how markets might continue to respond to the current virus crisis. What could be next for gold prices, will they continue to reach new highs, or will they return to recent lows?

Analyzing gold price action

When analysing the price of gold, you must take into account the current environment. The reason why gold has been so volatile is mainly due to the pandemic. When the virus started to spread at the beginning of the year, many people didn't know what to expect because it was a new phenomenon. As a result, the markets panicked and moved at breakneck speed.

As shown in the above daily gold chart, this year has featured sizeable fluctuations in the price of this safe-haven instrument. On 20 February, the price was trading at $1569, while the virus was still mainly based in the Chinese region, after its reported appearance in Wuhan. Two weeks later, in March, the price rose by nearly $139 and traded at $1,699, its highest level in seven years. To put things in perspective, it took five months for gold to reach this level in the first half of last year.

What will happen next?

Given the above, what's next? Many believe that only when the real impact of the crisis begins to be felt will the price of gold continue to rise. In recent weeks, the market has already started to consolidate and create a price range between $1575 and $1655. If news of the virus starts to get worse and governments around the world fail to manage the Corona malady, and even have to resort to the military to impose containment measures as the summer approaches, many may see this as a sign of a flight to gold investments.

On the other hand, as we are currently seeing, with China beginning to return to some normality and many badly affected countries on the verge of a "peak", the markets may believe that the worst is over and that this could lead to huge sales of gold, as investor confidence returns and the upward trend we have seen in recent years continues.