Overall picture remains positive for gold
The gold bull market started all the way back in 1999-2001, when gold was $250. Gold then peaked at $1,920 in 2011, after which it pulled back by 45%, before climbing up and hitting new record highs this year
So far, in 2020, gold has registered an increase of 27 per cent in its prices. This has by far been the best performing year for gold, where in July alone, the yellow metal prices surged 12%, creating new life time highs.
The bullish sentiments were passed over from July to the current month, where gold soared above the $2000 level for the first time, crossing $2050 further.
The main reasons for this rally were-
- Financial Stimulus– To combat the negative economic impact of COVID-19, central banks and governments have initiated massive stimulus programs. These actions, along with heightened uncertainty, have seen investors flee to safe haven assets such as gold, which hit a fresh record high in early August.
- S China trade war– Economic and political developments in the U.S. and geopolitical tensions between the U.S. and China helped to support the rally in the gold price.
Apart from this, macroeconomic facts like, low to negative interest rates, the global economic downturn, and ongoing geopolitical tensions have also contributed to the rally.
We all saw gold reaching new highs in a very short period. Gold managed to cross its 2011 high if 1920, rose above $2000 and crossed $2050, in just three weeks. Hence a correction in prices was expected but it was more of profit booking.
The dip in prices came amid rising U.S. treasury yields and reports that Russia has granted regulatory approvals to a vaccine to combat COVID-19.
However, if the Covid situation worsens or if there is a second wave of infection, then gold is expected to boom. Any form of second wave will result in a deeper economic downturn, thus keeping sentiments bullish for gold.
We might see a further dip in prices, but the overall picture remains positive for gold.