Gold continues to remain in demand
Last week passed in a much quiet phase for the world. It was rumoured that North Korean President was unwell, but later his spokesperson confirmed that he is alive and in good health. While crude did not receive much good news pertaining to demand and overflow, gold had a pretty stable week and an amazing monthly rally as gold began its journey at $1590 and gained nearly 8-9%, touching $1730 on Thursday.
Gold has continued to play its role as a safe haven, as central banks and governments have announced massive amounts of support for economies in lockdown, but this should now be in the price.
While the broader macro backdrop remains supportive for gold prices in the near term, real yields are being tracked more closely. Safe-haven buying has continued to support gold primarily through ETF inflows and continued retail investor demand. So if we see different economies starting to reopen, we might see some of that safe haven demand starting to ease.
U.S. unemployment is at a totally unprecedented, and unpredicted, 16.5 % of the workforce and may yet rise further, although moves to re-open a very limited section of the economy could mean this could soon be stagnating. On one side there is optimism the US economic figures will improve, but on the other side there is fear that the virus may not get contained and can spread further.
The U.S. economy tends to be the driver for the rest of the world but world virus data is at least equally alarming. Globally total COVID-19 known infections have already hit 3 million, with more than 210,000 deaths. True, Asian and European figures – and even those in the U.S. – could already have peaked and be beginning on a downwards path, but the virus incidence in Africa and parts of Central and South America, where health systems are supposedly less able to cope with the virus spread, may only just be beginning.
There’s also a chance of a second wave of infections if, and when, lockdown measures are eased, or if there is resurgence in the northern winter months. COVID-19 is likely to be with us for some time yet and poses an enormous continuing threat to the global economy and to what we consider to be our normal way of life.
Investors now shift their focus to a U.S. Federal Reserve meeting ending on Wednesday and a European Central Bank (ECB) meeting on Thursday as major central banks once again take the stage as the global economy grapples with blows inflicted by the COVID-19 outbreak.
Even when the lockdown is lifted, the world will still be far from any kind of normality. The bigger risk then is economic collapse. Gold tends to benefit from widespread stimulus measures as it is often seen as a hedge against inflation and currency debasement.
Any kind of recovery will be gradual and gold will benefit from this prolonged phase of weakness. Economic indicators reveal that the numbers won’t be pleasing and that after lock down is eased we might face an economic collapse. We very well know that governments around the world are doing their best to spend parallel sums of money to boost the economy. Central banks have been pushing enough stimuli to keep the markets alive.
And hence even in the long term, Gold should remain in demand as a crisis currency in this environment which makes the future brighter for the yellow metal.