Risk Appetite Sinking
The gold market is slightly higher today as investors again shed stocks and risk appetite shrinks. In mid-am action, the benchmark Dow Jones Industrial Average is down by nearly 200 points as investors consider the ongoing spread of COVID-19 and the recent Berkshire Hathaway move that saw the company dump all its airline holdings.
As if the continuing spread of COVID-19 and the economic difficulties surrounding it are not enough, tensions between the U.S. and China have been on the rise. The U.S. has stepped up its rhetoric placing blame on China for delayed reporting about the Coronavirus outbreak at its early stages in February. The increase in U.S./China tensions could potentially affect the trade agreement the two sides finally made in January, and President Trump could even look to implement fresh tariffs in the near future.
As some U.S. states look to open back up following weeks of lockdown, the potential for another wave of COVID-19 must be considered. Some states, such as Georgia, are opening back up but not following federal guidelines to do so. As states look to get business going again, the next few weeks could be critical for both the virus and the economy.
If states reopen and the virus remains on a downward trajectory, with cases declining, it could help fuel a recovery that could possibly send stocks higher. On the other hand, however, is what stocks may do if states reopen and are forced to close again due to an increase in virus expansion. That situation could potentially be catastrophic and could cause negative economic effects that could take years to mend.
The ongoing uncertainty over the virus and global economy could keep a bid in gold and other perceived safe haven assets. If the yellow metal is able to hold above the $1700 level, then a strike at $1800 would seem logical in the weeks ahead. With little chart resistance ahead of the market, a move to $1800 and beyond could set the table for a challenge of previous all-time highs near $2000 per ounce. An upside breakout into fresh all-time high territory could see the price of gold move dramatically higher and do so very quickly.
As the U.S. Federal Reserve and other global central banks take steps to try to protect their respective economies as well as the global economy, the threat of inflation could be on the rise in the years ahead. The U.S. Fed has already cut rates to zero again, while also implementing unlimited QE. Fed Chief Jerome Powell recently suggested that the central bank is not concerned about the deficit during emergency times such as what is currently being seen, and that mentality could spike severe inflation unlike what has been some in some time.
The ongoing threat of rising inflation, global recession and geopolitical uncertainties may keep the gold market on the offensive in the months and years ahead. Such an outlook may fuel buying in gold on any significant dips, as well as buyers stepping into the market on strength.