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Gold Price May Ride the Tailwind of Virus Uncertainness, Soft US Dollar

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Spot gold price chart

Source: IG Charts

GOLD FUNDAMENTAL OUTLOOK: BULLISH

  • Gold value may rise as international virus uncertainty boosts require safety
  • US Dollar weakness in the midst of accommodative central bank insurance policy could provide support
  • Downside possibility lies with weaker require from China and India, while consumers may hold back spending

Gold Price Macro Outlook:

Gold prices have recently damaged out above a key amount at US$ 1,750 and edged higher. International growth uncertainties resulting from the coronavirus and concerns more than the economic recovery is usually inhibiting risk appetite in addition to boosting demand for safety. While the likelihood of a good pause in opening-up goes up alongside Covid-19 cases all around the globe, investors might look at precious metals as a defensive choice compared to stocks in addition to bonds. The recent move in gold prices in addition to selloff in the Investing is reflecting a swing movement down of risk belief.

Gold price has shown correlations with mining corporations (positive), central bank money supply (positive), underlying require (positive), inflation (negative), the US Dollar Index (negative) and the broad inventory market (negative). A summary of the observed correlation is usually summarized in the stand below. Surging money source from the Fed along with other central banks around the entire world suggests more liquidity usually are injected into the economy, and thus would may buoy gold prices. A conditioning US Dollar in recent months has further propelled thing prices, including crude oil in addition to precious metals.

Gold prices

Source: Bloomberg, DailyFX

{BUILDING_CONFIDENCE_IN_TRADING

Gold Demand Outlook on life:

Physical demand for gold, however, is a bit tricky. A collapse in the global economic climate as a result of the Covid-19 pandemic may quench investors’ demand for jewelry, watches in addition to investment in the actual physical gold. In Asia, the slowdown of China’s economic climate, which remains world’s most significant purchaser of the material for jewelry and expense purposes, may hurt consumers’ gold spending this year. Recently, China’s demand for gold has fallen by 14% YoY due to trade war in addition to macro headwinds. The overall total annual consumption of gold this coming year is expected to remain under 2018’s peak.

Gold Price May Ride the Tailwind of Virus Uncertainty, Soft US Dollar

Source: Bloomberg

Gold Price Forecast:

Gold’s ahead price curve is in a good contango, with far-dated value trading higher than the close to date’s. However, a survey by Bloomberg suggest price of gold may consolidate at just one,700 through to Q4 this coming year and even drop to 1,600 in 2022 (table below). This suggests how divergent the opinions from dealers and economists are on platinum prices.

For short-term dealers, the best barometer regarding gold prices is perhaps the US Dollar Index, which can be liquid and readily available for seeing in many platforms. The bad correlation between gold price in addition to the US Dollar Catalog is -0.29 more than a 1-year horizon, despite getting fallen to -0.12 over the last 30 trading sessions.

Gold $/t oz

Spot

Q2 20

Q3 20

Q4 20

Q1 21

2020

2021

2022

2023

Current forward price

1761

1730

1732

1792

1796

1702

1800

1814

1835

Forecast (Median)

1680

1700

1700

1713

1669

1690

1600

1640

Diff (Median – Curr)

-50

-32

-92

-83

-33

-110

-214

-195

Source: Bloomberg

Gold Price May Ride the Tailwind of Virus Uncertainty, Soft US Dollar

Source: Bloomberg

— Written by Margaret Dimana, Strategist for DailyFX.com

To contact Margaret, use the Comments section below as well as @margaretyjy on Twitter

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