What are the prospects for the gold rally to continue? | 05/31/20

Gold was dormant for a long time. But the price of precious metals has been rising steadily for around a year. How far can the rally carry the gold price?

• gold has gained more than 30 percent in value in the past 12 months
• Prospects for further gold price increases are positive
• Analysts are also bullish

The gold price is considered one of the profiteers in the financial market. Since its 52-week low at $ 1,289.05 in May 2019, gold investors have had a positive performance of more than 30 percent in their portfolios. The prospects for a continuation of the rally are good, because nothing has currently changed in the positive gold market environment.

Safe port effect drives the gold price further

The Corona crisis continues to have a firm grip on the markets. Even if the stock exchanges have apparently already shaken off the pandemic shock: the consequences for the global economy will be clearly felt in the foreseeable future. In order to cushion the expected economic burdens, central banks worldwide have pumped money into the markets to an unprecedented extent and caused a flood of liquidity. Interest rates will remain at a low level for a long time due to the weakening economy. Good news for gold, because the yellow precious metal is a profiteer in this market environment.

In economically uncertain times, investors flee in gold investments that are considered to be stable in value. Against the backdrop of a flood of liquidity from Fed & Co., inflation worries are rampant; those who invest their money in gold protect it from the depreciation of paper money, according to the tenor on the market. Because unlike fiat money, gold cannot be reprinted if there is a need, instead the natural gold resources are limited, the precious metal is only available to a limited extent. This leads many investors to believe that gold must inevitably increase in value, but at least be stable in value and thus secure their own assets. As long as this conviction is present, inflation concerns should continue to support the gold price and continue to ensure a positive price development for the precious metal in the coming months.

Strong gold demand with an additional effect

In addition, the demand for gold has increased significantly in recent months. The temporary paralysis of supply chains – due to lockdown measures around the globe – triggered a kind of FOMO effect. Many investors who registered the strong demand for the precious metal and at the same time recognized that the supply situation could be problematic, at least temporarily, were afraid of not being on board when the gold rocket took off. Strong gold demand is currently driving even stronger gold demand – against this background, a further increase in the gold price is at least likely.

Gold ETFs with strong inflows

This becomes particularly clear when looking at gold ETFs and gold ETCs, popular asset classes of gold investors. Inflows into gold-backed ETFs were positive for the sixth consecutive month in April, according to the World Gold Council report. “Gold has outperformed most major asset classes […] we expect this trend to continue as investors struggle with ongoing market and social uncertainty and the impact of central bank interventions, “said Juan Carlos Artigas, head of research at World Gold, said Council, continue.

Good prospects for gold

Since investors in gold ETFs are often medium to long-term oriented, the prospects for a further increase in the gold price are generally good. Demand is expected to recover from the Asia region, where gold imports have recently plummeted in the face of the corona pandemic, which has led to supply chain irregularities. A recovery of the jewelry market with easing efforts in many countries is expected, although the effects on the gold price are likely to remain subdued.

The continuing low interest rate policy of the central banks and possible further liquidity injections by the currency keepers, but also the uncertain economic development will probably further support the desire of many investors for gold investments.

Gold experts, who recently made optimistic gold price forecasts, have a similar view. ING analysts believe that gold will soon break the $ 1,800 mark. They see the increasing tensions between the USA and China as an additional price driver for gold. The major Swiss bank UBS also believes that the precious metal has the potential to overcome the psychologically important price mark.

Editorial office finanzen.ch


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