Can Gold break above the $1,745 level?
At the time of writing, Gold is up for the second week in a row, trading around the $1,745 level, which has acted as an important resistance level since mid-April. Rebounding Covid-19 infection rates and recent mitigated macroeconomic figures have sent the markets into risk-averse mode, which have sent Gold's price higher.
Most investors are now wondering if Gold will have enough bullish momentum to continue rising and break above $1,745 towards the $1,800 level, which it hasn't reached since September 2012.
When you buy gold, it's always good to understand what factors influence the price. One of the most important things to remember about Gold is that it acts as a 'safe-haven' asset in times of economic uncertainty and higher market volatility. In addition, Gold is often considered to be an inflationary hedge.
Let's see how today's macroeconomic situation might help push Gold's price even higher.
Investors might keep rushing into Gold due to coronavirus disruption and global growth uncertainty
While many parts of the world, such as the US and Europe, are reopening their economies, there are increasing worries that the coronavirus might be making a resurgence, impacting global market sentiment. Some multinationals have decided to close their shops once more, after having just reopened them.
For example - Apple, faced with these rising risks, decided last Friday to re-close some of its shops in US states where there has been a resurgence of Covid-19 cases. The company shut 11 stores in Florida, North Carolina, South Carolina, and Arizona, declared CNBC.
"Due to current Covid-19 conditions in some of the communities we serve, we are temporarily closing stores in these areas. We take this step with an abundance of caution as we closely monitor the situation and we look forward to having our teams and customers back as soon as possible," explains the company.
During these uncertain times, investors adopt a more conservative investment approach, investing in safer assets like Gold, which can better protect their investments against market volatility, and potential risks linked to the trajectory of inflation, which is on the rise due to heavy monetary stimulus packages implemented by various governments.
Continued monetary and fiscal support from the Fed and the US Congress will impact the value of the USD
As Gold is often considered to be an inflation hedge, this means that it is seen as a protection tool against the purchasing power risk. The value of Gold increases when the purchasing power of the American dollar declines, which is what happens when the Fed and the US Congress implement stimulus programs that produce more money - the more US dollars that are circulating throughout the economy, the less the value that each of these dollars holds.
Inflation measures the rise of the general price level of goods and services in a country. When inflation increases, the purchasing power of every dollar you own (or any other fiat currency) decreases accordingly. As Gold cannot be printed like banknotes, it retains its value, acting as a store of value that everyone has confidence in. Hence why it's seen as a 'safe-haven' asset that investors flock to in times of uncertainty.
Goldman Sachs raised its 12-month forecast on Gold to $2,000 an ounce
The popular American multinational investment bank, Goldman Sachs, raised its Gold price estimates:
Its 3-month Gold price went from $1,600 per ounce to $1,800 per ounce ;Its 6-month Gold price forecast went from $1,650 to $1,900 ;Its 12-month Gold price estimates from $1,800 to $2,000."Gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates. [...] Simultaneously, we see a material comeback from consumer demand by emerging markets boosted by easing of lockdowns and a weaker dollar," analysts at Goldman Sachs wrote in a note.
Bottom Line
Many factors impact the price of Gold. Among the most important are monetary and fiscal policies (and their impact on inflation), the fluctuation of the USD, as well as the level of demand for Gold throughout the world.
As Gold is considered a safe-haven asset, it is highly probable that its price will keep rising within this uncertain environment surrounding the coronavirus, as there are still many concerns regarding the duration of the pandemic, the short and long term economic costs, and the lengths various governments will have to go to in order to keep their respective economies afloat.
If the price of Gold follows the Goldman Sachs forecasts, it should soon break above the $1,745 level. Gold could therefore still provide great investment opportunities for those wanting to maximise returns, given the unprecedented monetary stimulus packages implemented throughout the world.