Gold Crashes Through the $2,000/Oz Mark

"The gold price surged 12% in July to hit new record levels. This momentum has carried into August with gold  tearing above the never-seen-before levels of $2,000-an-ounce mark on the third day of trading. The rally in gold has been powered by safe-haven appeal for the metal due to the worsening economic conditions resulting from an out-of-control pandemic. The central banks around the world continue to inject stimulus to resuscitate domestic economies, which has led in some cases to currency devaluation especially dollar and lower interest rates, further supporting the rally. Tensions between the U.S. and China simmered, while U.S. President Donald Trump’s controversial statements on the upcoming elections in the country kept the investors interested in gold. With all these factors in the backdrop, the journey of gold in August looks promising, but profit taking could lead to the consolidation of prices after such a rapid rally." 

comments Cameron Alexander, Director of Precious Metals Research at Refinitiv.

"Corona virus cases have exploded across the world. The global tally of COVID-19 cases is nearing 19 million, and the conditions are worsening in several U.S. states. The White House said in a statement on Sunday that the country was in new phase of the outbreak and that the infections were “extraordinarily widespread” in both rural and urban areas."

"The extent of the blow suffered by the global economy due to the corona virus is also being reflected in the data that came out of the U.S., last week. U.S. GDP contracted by an alarming 32.9% in the Apr-Jun quarter. On the other hand, data released by the Labor Department showed that the weekly jobless claims for the week ended Jul 25 at 1.4 million. Such weak economic data could also prompt the Congress to shell out on an economic relief bill. Further stimulus measures will be a positive for gold. However, equites continue to be supported by the huge amount of liquidity that has entered the market as a result of the stimulus measures, but if this support falters we could see an accelerated run on gold.

Another factor that could disrupt the financial markets and support the gold rally are the political developments in the U.S. The elections are now less than 100 days away and Trump had recently suggested delaying it, raising concerns he will seek to circumvent voting in a contest where he currently trails his opponent by double digits."

He continues, 

"On the geopolitical front, relations between the U.S. and China have worsened in the last month, with Trump indicating that he was going to ban China-owned application TikTok from the U.S. The United States had recently shut down the Chinese consulate in Houston, and in a tit-for-tat response, China then ordered shut a U.S. consulate in the southwestern Chinese city of Chengdu.

Looking ahead, the focus will continue to be on the corona virus developments worldwide and on fresh economic data coming out of the United States which will influence the price of gold in the short to medium term. Investors will be monitoring just how quickly the world’s largest economy can return to expansion mode and how soon an economic relief bill will be finalised. Against an uncertain backdrop, we expect gold to hold above the $2,000 level this month with further upside possible. With such a rapid rise in recent days, we may well see a retracement in the price and a period of consolidation, but the overall picture remains positive for the yellow metal. Economic uncertainty due to the impact of corona virus is driving gold investment. Institutional investors are turning towards COMEX and ETP’s. The SPDR assets, the world’s largest gold trading funds, had hit nearly 1,243 tonnes in July which is highest level in nine years, before easing a bit. We retain the view that monetary and fiscal policies around the world will continue to be supportive for gold. Bond yields and short-term interest rates should stay low in nominal terms and negative in real terms for the foreseeable future."