The gold market has continued to exhibit strength in recent trade even as stocks have been buoyant. It seems as if many investors now understand what is happening in the global economy and marketplace and are looking to plan ahead for a major economic slowdown and rising inflation.
The gold market stands firmly above the $2000 level after Tuesday’s trade, and any significant dips in the metal are likely to be bought aggressively. The combination of a slower economy, pandemic, zero-percent interest rates and unlimited money printing are all fueling gold’s rise. These factors may continue to fuel upside in the yellow metal for months and years to come, as the potential effects of the latest round of ultra-low interest rates and QE may not be felt for some time.
Tuesday saw some wild swings in the gold market. An explosion in Beirut initially gave gold an upside lift. Once it was determined, however, that the explosion was a fireworks storage facility located next to a factory, the price of gold fell by about $9 per ounce. That dip was bought, however, as many traders and investors are searching desperately for opportunities to enter the market on the long side. With today’s new all-time high of over $2024 per ounce, the market could have significant, further upside to cover before the rally starts to get winded. Some analysts Tuesday suggested that another $200 per ounce of upside is likely before the buying slows down.
Although some may suggest that the gold market is already overbought, the market’s technical indicators do not suggest an overbought condition, at least not yet. $2200 per ounce could very well be the next target for the bulls, who have little to no reason not to be aggressive buyers. Ultra-low yields along with a weaker dollar index are also considered bullish for gold, and if recent trends continue, the yellow metal could be gearing up for a sharp and significant run higher. With no upside chart resistance to bank on, those looking to short the market could find themselves being forced to cover their positions and cover them quickly. This short covering may lead to even higher prices for a rally that does not appear to have run its course as of yet.
The gold market appears strong, yes, and it may take a lot to knock it off its pedestal. That being said, the yellow metal could be vulnerable to an end to the current COVID-19 pandemic if a vaccine is proven and brought to market. The quickly approaching U.S. Presidential election may also play a role in gold’s future. It has been suggested that a Democratic victory by challenger Joe Biden could upset financial markets and bring stocks lower and do so in short order. A Trump victory, on the other hand, is seen by many as being supportive of financial markets.
With so many current unknowns that must be considered by investors, markets may see less movement heading into the election in November. As the uncertainty piles up, however, an increasing number of investors may seek out the perceived safety of previous metals as a hedge.