The quotes of the "yellow metal" entered a steady growth phase from the first days of June before the beginning of August. So what was the reason for this and is it worth hoping that it will be able to gain a foothold above the $ 2,000 mark?
The main reasons for the rise in gold prices
So, gold quotes, after experiencing strong pressure from the strengthening of the US dollar in March, as well as other commodity and raw materials assets, began to rise sharply as the demand for risky assets (company shares) began to rebound in financial markets. Hopes on the part of investors that the coronavirus pandemic would be brought under control in April-May triggered these sentiments. Additional support for the prices of gold was provided by unprecedented stimulus measures from the US Treasury and the Federal Reserve, which weakened the position of the dollar in the currency markets. And since gold is traded in dollars, then its fundamental weakness began to support the rise in prices for this precious metal.
On the other hand, the disappointment of investors who hoped that the global economic recovery would be faster and more energetic, led to an increase in demand for gold as a safe-haven asset. This was the main reason for the rally at the end of last month, which ended with a successful assault on the level of 2,000 dollars per ounce and an attempt to gain a foothold above this mark.
Why is gold unlikely to hold above $ 2,000?
The sharp drop in gold prices began amid rising yields on US Treasury government bonds. So the profitability of the benchmark of 10-year Treasuries began to grow actively on August 7, which became a signal for fixing the previously received profit by investors who had only recently bet on the growth of quotes. However, there were two more important reasons that put pressure on oil prices. This is the publication of generally strong reports of American companies for the 2nd quarter amid positive economic data for the month of July, which showed that, despite the situation with the coronavirus pandemic, the country's economy is beginning to revive, which means the dollar is an asset that does not bring interest will lose its attractiveness. An additional factor not in favor of buying the dollar was its strong technical overbought.
Assessing the change in market mood, a gradual increase in interest in buying risky assets, we should hardly expect a resumption of growth in gold prices, and even more so, its consolidation above the $ 2,000 mark. The market is clearly seeing a steady shift in investor priorities from safe-haven assets to instruments that have the potential to rise in price and generate interest. Of course, we mean company stocks.
What awaits gold in the foreseeable future?
Observing everything that happens in the markets, as well as the possibility of a possible surge in inflationary pressure in America, we believe that the decline in gold prices will only strengthen in the near future. The flow of investment capital from safe-haven assets to stocks with upside potential, the risks of a smooth change in the Fed's monetary exchange rate amid rising inflationary pressures will help lower prices for the gold. As the global economy recovers, gold prices will only decline.
If we pay attention to the technical side of the issue, then on the daily chart, a structure of two peaks clearly looms, the second of which is lower than the previous one, which indicates the formation of a reversal pattern with a likely decline in the price to the area of $ 1825.00 per ounce.
Here's the last thing. In our opinion, all of the above reasons and factors play against the prospects for the resumption of strong growth in gold quotes. We expect that the price of gold will rise above 2,000 not only in the near future, but also in the long-term, unless, of course, the second wave of the pandemic begins. But in this case, it will be necessary to revise the entire philosophy of the issue.
Forecast of the day:
Spot gold is correcting downward. Breaking through the level of 1908.00 will become the basis for the continuation of the decline to 1835.00.
The EUR/USD pair declined on the back of the dollar's strengthening following the publication of the Fed's minutes of the meeting on monetary policy, where the regulator expressed high concern about the prospects for a slowdown in the US economic recovery due to the pandemic. The pair is trading above the level of 1.1830, breaking which will lead to a decline to 1.1700.
