Gold has always been considered a hedge against inflation, currency debasement and uncertainty. The yellow metal has gained 25% this year, driven by massive global stimulus to cushion economies from the pandemic-induced slump.
In spite of new stimulus measures, the U.S. and global economies are not expected to significantly recover until there is a vaccine for the coronavirus, which some health officials say won’t be widely available until the summer next year.
Prithviraj Kothari of RSBL commented that in general, gold still looks positive and strong as it has a long way to go. While COVID-19 cases in the US are levelling off, the disease is still a major concern in countries such as India and Brazil, European cases are rising again, and health officials are worried about combating COVID-19 in flu season. Further, equity valuations seem historically elevated, US-China relations are worsening, and the potentially contentious US presidential election is looming. But growth has rebounded strongly. And with the improved prospects of vaccine approval, analysts at RSBL remained overweight global equities over fixed income.
This environment of meagre growth will keep inflation pressure muted, which means real interest rates might not go much lower than current levels, concerns that a steep rise in COVID-19 cases could lead to renewed lockdown measures and hinder the global economic recovery might extend some support to the USD’s status as the global reserve currency.
Gold prices edged up on Thursday after U.S. President Donald Trump reignited hopes of a coronavirus stimulus package before the Nov. 3 elections, but a strong dollar kept the metal’s gains in check.
Spot gold rose 0.3% at $1,906.15 per ounce during the trading session. Trump said he would agree to go higher than the $1.8 trillion that the White House has offered in coronavirus stimulus to strike a deal.
Furthermore, even with the government expected to pass a new aid package before the end of the year, the U.S. economy will see only marginal growth until at least the summer of 2021, until the COVID-19 pandemic is under control.
Experts opinion on the inflation fears varies however, most analysts and market researchers are of the opinion that investors would fear the course of economy only when the global economic scene picks up. It is then that one would see gold enjoying an important factor that would determine its next course of price in the future.
Regardless of volatility, some experts recommend holding a gold allocation of 1% – 5% of an overall investment portfolio, and such a position may make even more sense against the current economic and political backdrop. Given the flexibility of the investment, you can hold the precious metal in a myriad of ways that can pay off in the long run. From buying gold-related stocks to the yellow metal itself, even a small position can have a big effect on overall performance amidst an unpredictable market.
Gold remains as volatile as ever. Even (or perhaps especially) in the face of an uncertain future, a little gold in your pocket—and your portfolio—can go a long way.
Gold is going to be driven by the tone of the U.S. dollar. The big move is going to probably occur after the presidential debate when we have a better read on where the polls are going to be sitting.
Another significant aspect that can play a key role in influencing gold prices- with so many UK property companies putting a freeze on withdrawals by investors, liquidity risk is now rising – and not just in the UK.
Gold’s traditional role as a safe-haven asset means it comes into its own during times of high risk. In these instances, when liquidity may fall for other investments, gold can act as a genuine diversifier over the long term
The following will play a key role in producing some meaningful trading opportunities fir the yellow metal.
The US macro data
broader market risk sentiment
US stimulus headlines,
Ultimately the macro factors that have driven investors to seek the yellow metal’s warm embrace will keep investment capital flowing into gold well into next year.