- Gold is another 0.67% higher as the USD 1900 per ounce level is broken.
- This is the highest level the precious metal has traded since the day it hit the all-time high.
Fundamental backdrop – QE and coronavirus
Gold has had another positive session and this could be the sixth consecutive day in a row the price has increased if the daily price stays in the positive. We would need to go back to 7th January to see the last time that happened. Also, this would be the fourth positive week in a row and at the same point in January, this happened too when the price broke out of a stubborn consolidation area at USD 1366.50 per troy ounce.
If we could pinpoint one reason for gold going on this tremendous run it could be the spectacular amount of stimulus that has been added by central banks and the government. Fundamentally this changes the value of fiat currency as there is an abundance of supply added to the system. Gold has always been inversely correlated to the dollar in the gold standard came to an end in 1971. So if fiat becomes less valuable, precious metals will benefit.
In the background of all this stimulus is a fair few other risks. The COVID-19 pandemic has rocked the world and the US has not handled the crisis as well as some of the other nations in the world. This first led to a massive increase in the value of the US dollar initially due to the requirement of margin and ability to meet redemption. However, reality kicked in and gold started to rise toward the end of March 2020.
Looking ahead to the rest of the year the risks have not dissipated. The US elections are around the corner and Donald Trump’s handling of the coronavirus pandemic has led to his popularity falling. Some financial bookmakers are putting his democratic rival Joe Biden’s odds on at a massive 67% in favour of the win. Biden leans more to the left and is less of a capitalist than Trump so the financial markets will look to a Biden win a bearish.
Lastly, the relationship between the worlds two largest economies (US-China) has been deteriorating for a while now. The US blames China for the COVID-19 pandemic and there has been a war of words between the two. There is now a tit for tat war, with each other closing down embassies in key stated in their respective nations. The US is also accusing China of intellectual property theft when it comes to vaccines to combat the virus.
JP Morgan once said, “gold is money, everything else is credit”.
Gold monthly chart
As you can see from the monthly chart below the price is a stones throw away from the all-time high of USD 1920.94 per troy ounce. There is not much to analyse from a technical standpoint other than potential targets. If the price does pull away from the highs the consolidation high at the red line near USD 1800 per ounce could be a good support. Beyond that, the blue line at USD 1525 per ounce is next in line to support any price fall. For now though the whole market is waiting for a break of the high.
-637312053004265416.png)
