The situation can't get more supportive for gold
Posted on Aug 07, 2020 at 12:00 am
Well to begin with, my last blog has justified its title- Will gold cross its life time high? Yes, it did and how. It managed to breach $1917 and create fresh highs at $1955 on Thursday.
Amid profit taking and as investors’ appetite for riskier assets improved after the Federal Reserve pledged to use all the tools to support the US economy. US policymakers left monetary policy unchanged and warned that the ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. Also, traders continue to monitor negotiations on the $1 trillion stimulus package proposed by Senate Republicans on Monday, rising coronavirus infections and US-China tensions.
Gold is on course for its biggest annual increase in more than a decade, driven by concern over the coronavirus pandemic and damage to economies, with gains supported by negative real yields and a weaker dollar.
The dollar ’s slide comes as the U.S. lags most of the world in controlling the spread of COVID-19, and some expect the country ’s economic recovery to lag others, including Europe. The prospect of mounting U.S. deficits as a result of continued fiscal stimulus and ultra-low U.S. interest rates have also put the dollar under pressure
U.S.D index at 93.6, fell more than 6-7% in the past 6 months and with pandemic and bitter U.S- China relations, there is increased historical pressure on USD to sustain its global currency status.
Riding on the dollar weakness, gold has managed to rise by $500 in the past 5-6 months. December contract hit $2000 an ounce and thereafter we had a massive profit taking to drop by $75, though it showed recovery again.
The much awaited FOMC meet, proved to be more or less neutral for gold. Fed’s chairman Powell was vocal in saying that their efforts on to every possible support as and when desired for the ailing US economy. So, this is a clear sign that US economy is going to see more plunging as Covid related issues are hurting the growth very severely.
We are already in a bull run that has started swiftly since the past 6 months and is expected to continue for long. There could be a correction of $70-$80. But the global economic scenario continues to remain weak and hence the sentiments continue to remain bullish. Gold is also rising because investors are seeking havens as the virus ravages the global economy.
The situation can’t get more supportive for gold. The low interest rates will give you a benign dollar and a benign dollar is very helpful to gold prices because it makes it much more affordable globally.
