The gold market retreated at the start of June, after trading near eight-year highs in April and May. Was that just a pause in the rally on the way to new heights, or has it run out of steam?
The precious metal has been pulled in both directions in the past month, as rallying stock markets would typically reduce interest in safe-haven assets and prompt a sell-off, but the unprecedented fiscal stimulus from central banks and governments is supportive to buying gold. So far, each time the market has retreated, investors have been quick to buy the dips. As a result, gold has outperformed most other major asset classes in the first half of 2020.
That leaves some investors asking where they should position prospective gold trades for the best returns. This article recaps the gold price latest news and future expectations of gold prices. Scroll down for a video in which David Jones, chief market strategist at Capital.com, recaps the recent market moves and uses gold price chart analysis to set up a potential trade for June.
Gold price analysis June 2020: precious metal attracts record investment interest
The gold price climbed to $1,789 per ounce in April, its highest level since late 2012, and traded around the $1,700 per ounce level during May. Daily inflows into gold-backed ETFs continued to rise throughout May. Global net inflows into gold ETFs increased by 154 metric tons to a new all-time high of 3,510 metric tons in May, according to the World Gold Council. “Year-to-date inflows of US$33.7bn exceed the highest level of annual inflows of US$24bn seen in 2016,” according to the industry body.
The gold market has jumped from the $1,520 per ounce level since the start of 2020, as economic turmoil has driven investors towards safe-haven assets.
Falling bond yields and negative real interest rates – prompted by the destructive effect of the Covid-19 pandemic on the global economy – have kept the gold market elevated. Countries are slowly resuming economic activity following government-ordered lockdowns to halt the spread of the virus, and its full impact on regular business activity remains to be seen. The combined GDP of the 37 countries of the Organisation for Economic Cooperation and Development (OECD) fell by 1.8 per cent during the first quarter, the first decline since the financial crisis in 2009. The second-quarter figure is set to be lower as the lockdown restrictions were fully underway in April.
Rising geopolitical tensions between the US and China over trade and the spread of the virus have offered further support to gold.
But gold has so far been unable to break through resistance at $1,800 per ounce as a risk-on environment in the equities markets in recent weeks has encouraged traders to sell off some of their gold positions.
Gold fell by almost 4 per cent in the first week of June, from $1,750 per ounce at the start of the month to $1,683 per ounce on June 5. During the same period, the S&P 500 index of the largest US companies climbed by close to 6 per cent, extending its unexpectedly rapid recovery. The Nasdaq 100 index of technology stocks subsequently returned to all-time highs.
There are concerns, however, that the pace of the stock market rally is unsustainable given the macroeconomic backdrop. The gold price quickly bounced back up over $1,700 per ounce as investors bought the dip, with strong support at $1,660 per ounce.
Watch the latest gold analysis June 2020 video with our chief strategist David Jones, as he uses gold price technical analysis to offer a suggested trade.
Analyst outlook: where to next for the gold price?
Gold remains in a technical two-year uptrend and has repeatedly defied calls for the market to top out in the last few months. There are tight support levels at recent lows around $1,660, $1,640, and $1,565 per ounce, with little resistance between $1,796 and the 2011 record high of $1,920 per ounce.
Commodities analysts tend to remain bullish about the prospect for the price to rise from the $1,700 level, whether in the near term or into 2021.
“We reiterate that those selling gold in response to risk-on are improperly discounting the macro implications,” said commodity strategists at TD Securities, noting that “the Fed will maintain its uber-easy policy for the foreseeable future, and may even utilise more tools (such as yield curve control) to support yields amid the forthcoming and massive Treasury issuances.”
The TD analysts expect the interest rate environment to remain supportive of gold. “In this context, real rates will ultimately be further suppressed – and, macro drivers such as this have been the primary driver for the accumulation of gold over the past months. We continue to expect capital to seek shelter in gold from a prolonged period of negative real rates.”
Commodity strategists at ANZ Bank expect investment demand for gold to outweigh weaker physical demand in Asia, with risk still skewed to the upside. The analysts forecast the gold price to average $1,700 per ounce in June and rise over the summer to average $1,800 per ounce in September and peak at $1,900 per ounce in December. The record high gold price of $1,920 per ounce was reached in 2011 and could be breached in the second half of 2020.
“We remain bullish over the medium term,” the ANZ analysts said. “The macro backdrop is challenging, despite market confidence in the trend towards normalised growth. The expansion of central banks’ balance sheets shows no sign of abating, while geopolitical tensions escalate. We think those investors who continue to raise their allocation to precious metals are sitting on a gold mine.”
ANZ senior commodity strategist Daniel Hynes noted that gold pushed back above $1,700 per ounce after the brief dip as investors were increasingly confident that the US Federal Reserve will continue its dovish stance ahead of its latest policy meeting.
But analysts at ABN Amro are more cautious about the potential for upside in the short term. “We continue to think that positions are too crowded and that prices are too high to recommend re-entering longs.” They expect another risk-off wave in the financial markets during the next three months that will prompt a sell-off in assets including gold, as happened in March.
The ABN Amro analysts expect gold to slip back and average $1,650 per ounce in the third quarter and $1,700 per ounce in the fourth quarter, taking until late 2021 to reach $1,800 per ounce.
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