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Uncertain times in financial market and gold’s performance as an asset class

Published by Karl Martin Karus in category Precious metals on 31.07.2020
Gold price (XAU-SEK)
16 720,10 SEK/oz
  
+ 94,30 SEK
Silver price (XAG-SEK)
210,46 SEK/oz
  
+ 3,20 SEK

Global markets still seem uncertain by many investors, both retail and institutional. Global stock markets are going further and further into uncharted territory. Precious metals, especially gold has been catching eyes from investors.

Many countries have started to implement coronavirus restrictions once again. Coronavirus uncertainty continues to press precious metal prices higher. Some experts are suggesting that gold could hit record highs.

Earlier this month gold broke 1800 USD per ounce level, which is a huge psychological milestone for investors. This level has not been reached since 2011.

The uncanny situation in the markets

Gold is up more than 19% since the beginning of the year and has surpassed a very important psychological level of 1800 USD per ounce.

Gold is considered as a “safe haven” like we have mentioned before in countless articles because it is less volatile than other investments, stocks for example. Historically speaking, investors usually move money from more volatile asset classes to less volatile asset classes when times are uncertain. This crisis, however, is presenting us with an uncanny situation in the markets. Even though economic data has worsened, equity markets continue to rally… and so does gold… and silver.

Cameron Alexander, Director of Metals Demand, Refinitiv said:

“Gold is being pulled in two directions: One is the uncertainty,” said Alexander, referring to the still-escalating pandemic. “But equities are still doing really well,” fueled by central bank stimulus, he noted. (1)

Technical outlook for Gold

Recently we saw gold break through a strong resistance area between 1750-1790 USD per ounce. Last week´s trading session (13.07.2020-17.07.2020) closed the weekly price above 1790 dollars which indicates a continuous uptrend for gold. So, what’s likely to be next for gold? Are we trusting the oversold indicator? Are we going to see a big correction? Is there any way the gold price can go higher, if so, how much higher? These are the questions in every investor’s mind. The next topic will give you some idea what gold investors are thinking about gold prices and the future of it. We also recommend to read our previous article The Fed can’t print gold: Gold to reach 3000 USD, 50% Above Its Record, as per Bank of America

What are investors doing?

When the pandemic clanked the markets in late March, investors rushed to free up cash. Stock markets saw a big plummet and also gold suffered a sell-off. Since then investors have returned to gold, seeing it as a safe store for their money.

According to BlackRock iShares data, so far this year inflow into ETFs globally is around 12 Billion US dollars.

Is it a good time to buy gold?

Strong bullish momentum is suggesting potentially high returns, yet prices are already at multi-year highs. Is it worth investing now? Here are some thoughts from precious metals investors:

  1. Albert Cheng, CEO of Singapore Bullion Market Association, said the question should be rephrased from “when” to “how much?” (1)
  2. “There is no good time to buy gold,” said Cheng, who said he sees the asset hitting $2,000 per ounce by the end of the year. “Every investor should have some gold in their portfolio.” (1)
  3. “I wouldn’t be surprised to see gold test the all-time highs set in 2011 at around $1,900 per ounce,” Thomas Taw, head of APAC iShares investment strategy at BlackRock told CNBC Make It. (1)
  4. Last month, Bank of America backed a similar “all-time high” prediction. In April, the bank said the precious metal could hit $3,000 per ounce. BofA Securities’ commodities strategist Michael Widmer said that surge would be fueled by continued global uncertainty — at least over the next few years. (1)

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Risks

Have the risks that led to gold’s recent rise been resolved in any way? This is a key question. Part of gold’s recent performance has to be put down to perceived monetary risks. Fear of central banks printing large amounts of new money and debasing their national currencies, as well as fear surrounding the idea of “lower for longer” where interest rates are concerned. Have these specific fears been put to bed? The answer would have to be a decisive no. (2)

Disclaimer: This article is for informational purposes only and is not intended as an investment analysis or recommendation to sell or buy commodities. Tavex is not responsible for any decisions made based on this information. Investing is associated with opportunities and risks, and the market value of commodities can both increase and decrease. Past or future yields on the commodities and financial ratios shown above do not represent a promise or an indication of future earnings.


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