Springtime Highs
The gold market is seeing fresh buying interest entering the market in the early stages of the trading week. Gains on Tuesday have put the yellow metal at the springtime highs, and the market is showing some significant signs of strength. An $1800 print in gold could be seen, and that could even be seen in the coming days.
Investors are buying up stocks again today as well, and the Nasdaq has also recently hit another fresh all-time high. Stock investors had been getting a bit more nervous recently as doubts began to surface about the phase I trade deal between the U.S. and China. Trump trade advisor Peter Navarro, a China-hawk, had recently suggested that the phase I deal was in jeopardy. President Trump took to Twitter Monday night, however, and said that the deal was still very much in place. Trump’s tweet prompted a rapid rebound in stock index futures, and that bullishness is still in place at mid-day Tuesday.
The gold market is seeing strong upside today even as stocks rally higher. The gold market is likely focusing not so much on stocks and risk aversion today, but rather the long-term consequences of ultra-low interest rates and massive QE. All the funds recently printed by global central banks are likely to, at some point, come back and that could lead not only to problematic inflationary pressures but also weaker currencies. The threat of runaway inflation is likely to continue to be a major focal point among gold investors and could eventually lead to significantly higher prices and declining disposable incomes.
The global economy, for now, appears to be staging a much faster rebound from the COVID-19 pandemic than anyone anticipated. That rebound may come under pressure, however, as the number of infections continues to rise. The world is currently attempting to reopen for business and a rise in infections could pave the way for a second shutdown. If countries are forced to begin shutting businesses down again, the long-term effects could be nothing short of catastrophic. Stock investors do not appear overly concerned about this possibility, but gold investors seem to be planning ahead for such a scenario.
Not only do investors have to grapple with the changing virus landscape, but the U.S. will also be holding a presidential election in the months ahead. Early polling data has former Obama Vice President Joe Biden with a comfortable lead above President Trump, but no one is willing to count Trump out yet, if ever. A Democratic victory has the potential to greatly change the investment landscape, however, and rising volatility and risk aversion could be seen as the election nears.
The gold bulls are in firm control of the market and a push towards a fresh swing high is likely to be seen in the days or weeks ahead. The bulls will now set their sights on the highs reached in April and if the market is able to maintain trade above $1800 on a closing basis, a test of previous all-time highs near $2000 would become increasingly likely.