The gold price is once again rangebound in today’s trading session which means its has now been more than a month where the price has traded within a range of $50 and according to some analysts the next big price movement may be downwards before the precious metal makes a comeback and pushes higher.
The recent rebound in the equities market which is up 30 percent since entering bear territory on the back of the coronavirus outbreak is one of the reasons the gold price has been subdued. Another reason is the US Federal Reserve’s commitment to keep interest rates above 0 which will provide support for the US dollar at the expense of gold.
“Before prices move into a significantly higher range, a drift lower is a significant risk”. said analysts from TD Securities
“Somewhat higher real interest rates amid reduced systemic risk, the Fed's commitment to positive policy rates, transitory disinflation, a firm USD, ample availability of physical metal to deliver against COMEX futures and a firm appetite for equities are all reasons why the yellow metal may straddle the lower bound of the trading range, before surging higher.” they added.
The analysts also believe that after the short term decline, the price of gold will hit $2000 later in the year as the effects of the coronavirus shape the new reality of the business world which will force governments to support the economy with further stimulus programs and all of this extra money on the market will make currencies such as the greenback a less attractive investment. This will add to the appeal for gold as as safe haven against inflation.
“It is very likely that the post COVID-19 world will be very different then it was just a few months ago. It will be one where the economy is functioning at below potential, with high long-term unemployment and with governments who will want to solve these problems by spending trillions of dollars, which they do not have. There is strong evidence that gold performs well when debt is skyrocketing. And, debt is at a record, with a very high probability it will reach much higher levels,” they added.
The $2000 mark mentioned for gold is based on containment of the coronavirus so any 2nd round of the deadly virus may see the gold price push even higher and this possibility is rising after the release of news from South Korea and Wuhan, where the virus originated that there have been several reported new cases. Only a few weeks ago these places where considered safe.