In the current situation, experts note the competition that arose between the two traditional defensive assets. During the period of activation of COVID-19 pandemic, investors massively invested in both the dollar and the gold, however, the balance is now in favor of gold.
The declining moods regarding the dollar are largely facilitated by experts' statements who fear that the American currency will lose its status as the main world currency. These fears are not groundless, but the situation may change at any time. According to currency strategists at Guggenheim Investments, the uninterrupted money printing in the United States threatens the dollar as the main reserve currency. To mitigate these risks, the Fed may start buying gold. If there is a large-scale acquisition of precious metals, analysts are sure that the price of which will increase several times and will support the dollar in such a situation.
Guggenheim Investments believes that the Fed should not expect decisive action such as a noticeable reduction in interest rates and a sharp change in monetary policy in the near future. The yield on treasuries can increase while maintaining the current situation. Analysts say that this will slow down economic recovery in the United States. The regulator will not allow such inconsistencies, but will take measures to normalize the situation.
Currently, the actions of the Federal Reserve are aimed at financing the US budget deficit, which creates potential risks for the dollar as the leading reserve currency. The purchase of gold by the regulator can compensate for the current risks. According to experts, such a strategy is justified, since the accumulation of precious metals is perceived by the market as a crucial step by the monetary authorities, necessary during the crisis. It can be recalled that the launch of the "perpetual motion machine" called the printing money machine can seriously weaken the dollar and ultimately deprive it of the status of a global reserve currency. The Federal Reserve will try to prevent this, using all means to normalize the situation, including buying gold.
At the moment, the gold, one of the rivals of the dollar in the world market, is at the peak of popularity. According to experts, it intends to storm the next highs and is ready for a rapid rise. Forecasts are mostly positive regarding the short-term and medium-term prospects of precious metals, and this is encouraging for the markets.
According to the observations of the World Gold Council, the hype around this protective asset does not subside. In the first quarter of 2020, global investment demand for precious metals increased by 80%, to a four-year high. The stocks of exchange-traded "gold" funds reached an impressive 3,510 tons, and the inflow of funds into the "gold" ETFs since the beginning of the year amounted to $ 33.7 billion. In May of this year, gold reserves increased by 154 tons, and this is not the limit.
The beginning of this year turned out to be favorable for the precious metal: in the wake of the pandemic and the growing panic associated with it, investors massively bought gold. Negative political factors worsened the situation, such as the growing conflict between the US and Iran, as well as the breakdown of the OPEC + deal. As a result, the price of gold in the spring of 2020 exceeded $ 1,700 per 1 ounce for the first time in 8 years. On the first day of summer, the price of precious metal jumped to $ 1744, and on Tuesday, June 9, it declined a bit - to $ 1717 per 1 ounce. However, experts are now observing a reversal of the upward trend in the opposite direction: investors are selling gold, the demand for which is starting to decline.
Experts say that the price of gold is "overheated" now and this could provoke its collapse to $ 1,500 per ounce. Such a collapse will help the precious metal to cool down and if there is no second wave of sales, then this decline will continue. At the same time, the probability of another upheaval in the global financial markets is quite high, and experts are sure that this will support the growth of gold. In the event of a negative scenario, experts say that the precious metal will remain in the range of $ 1600- $ 1800 per 1 ounce. On the other hand, some analysts have suggested that gold prices will rise to $ 2,000 per ounce over the next 12 months.
It can be recalled that the gold traded in dollars, not only goes in conjunction with a dollar, but also competes with it to win over the financial market. According to analysts, this alignment will continue in the near future, and gold will have to compete with the dollar, fighting for the attention of investors. At the moment, the balance may lean in favor of precious metals, as there is a rumor of weakening the US currency in the market. This undermines the position of the dollar, against which the gold shines with its unchanging brilliance.
The gold and the dollar are tied by financial bonds: both are considered traditional defensive assets and are incredibly popular with investors, while being both associates and rivals in the world market. Their symbiosis can be defined as a cross between forced friendship (the so-called "sworn" friends) and constant competition. Experts are sure that this state of affairs will continue for a long time, while maintaining the balance between gold and US dollar.
The material has been provided by InstaForex Company - www.instaforex.com