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What has happened to the price of gold and what lies ahead for precious metals

Published by kirke in category Market Insights on 21.08.2019
Gold price (XAU-SEK)
1,00 SEK/oz
  
- 0,00 SEK
Silver price (XAG-SEK)
1,00 SEK/oz
  
- 0,00 SEK

What has happened in the recent past?
In the past month, we have seen huge spike in gold price. Gold compared to US dollars has touched a very important 1500 USD per ounce level. Gold price has not been in these levels in 4 years. So, what moved gold price that much?

We want to remind you that gold is considered as a ´safe haven´ investment, as was evident after last financial crisis in 2007-08. When economy is slowing down, the price gold is going up. Investors turn to gold and other safe haven assets when the economy is showing signs of slowing down. Let us look at the important news that contributed to the movement of the price of gold:

18-19 June Federal Open Market Committee Meeting
Interest rates were not lowered in this meeting. Interest rates were kept in 2.50% levels. All though many banks and investors, including Deutsche Bank; JP Morgan and others, thought that interest rates are going to be lowered. Economy was showing signs of slowing down.  After this meeting many were almost certain that in the next meeting interest rates are going to be lowered as much as 0.50% (from 2.5% to 2%). Gold was moving sideways and market was uncertain what is going to happen next. Correction or another spike up?

28-29 July G20 Osaka Summit
*What is G20?Its main goal is to bring together systemically important industrialized and developing economies to discuss key issues in the global economy.The heads of the G20 nations had two summits in the years 2009 and 2010. Since the November 2011 Cannes summit, all G20 summits have been held annually. Investors were looking forward to Trump and Xi meeting because of trade war. After the two presidents met, the news was that Trump is not going to add additional tariffs at this time. Gold kept moving sideways, because of the uncertainty…

5 July Non-farm employment change news.
* What is non-farm employment change?  Change in the number of employed people during the previous month, excluding the farming industry;

This news made ´clear water´ a little bit ´cloudy´=uncertainty. After 18-19 June FOMC meeting there was kind of certainty about next FOMC meeting. There were a lot of speculation what they will do about interest rates and a lot of this speculation indicated that Federal Reserve is going to lower interest rates. Then the Non-farm employment change hit….and….it was very positive for economy. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity.
Prediction was that there are going to be around 162 000 new jobs created. The news impressed the market with 224 000 new jobs. This is positive and strong indicator about economic health.
After that news gold moved sideways until the next FOMC meeting was around the corner. Like said before there was a lot of discussion and noise in the market. Different thoughts and uncertainty in the market after non-farm employment change.

30-31 July Federal Open Markets Committee Meeting  

The interest rates were lowered by 0.25% and gold spiked again in the next few days touching 1500 USD levels per ounce. As we stated at the beginning of this article, gold has not been this high in 4 years.
After the FOMC meeting, USA president Trump posted a tweet that he will add additional tariffs to Chinese goods. Just a small 10% tariff for 300 Billion Dollars’ worth of goods…


What is next for Gold? Projections and ideas

 

There was a very strong resistance at 11900 SEK price, where buyers tried to break through, but failed many times (see red arrows on the graph). After Interest rates were lowered, trade war continued and additional tariffs were added and overall economical situation is showing signs of slowing down. Gold broke this 11900 SEK level first in February and moved sideways for couple of months. The last resistance level of 11900 SEK was now a strong support level which also was tested in the middle of April. From there gold price has increased by more than 2500 SEK per ounce. This is more than 20% increase in 5-months.

At this time it is quite hard to make strong predictions where the price is going so we are going to give just different scenarios what could happen:

  1. Gold price keeps pushing higher until 15500 SEK per ounce and then makes a correction, a big correction potentially back to 12500-13000 SEK per ounce.
  2. Gold price makes a correction in couple of months, but it is unclear to which levels. It could go as low as 12500, but it is quite unlikely, since gold has a huge momentum going on.
  3. Gold breaks 15500 SEK per ounce levels. When this happens then we are in a no-mans-land, because gold has NEVER been this high in history.

In conclusion many investors and hedge fund managers believe that this cycle for gold is going to be something that history has not seen before. Investors believe it is only question of time when gold price surpasses 2 000 USD per ounce. At this time gold is showing strong upwards trend and we believe it is going to continue but with small corrections in the middle.  It is also very important to keep your focus on what is going on with interest rates, trade wars, employment changes and similar economical indicators.
Keep in mind! When economy is slowing down, Gold is going up!

Protect your purchasing power and preserve your wealth today!

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