The price volatility in precious metals went into overdrive this morning as gold spot contracts skyrocketed first to the short-lived stratospheric highs above $1980/toz in early Asian hours and then nuzzled into the mud of a fleeting low at $1907/toz in the European morning. Afterwards they managed to recover by $15 higher again in several minutes and touched $1935/toz before the noon. The range of jumps reached as much as 15% for silver futures, which managed to draw alternately $26.15 and $22.25, and $24 again on intraday charts.
Most likely, such round-the-world flights are the result of the ordinary inertia of the vertical take-off in previous days, which met with a wave of powerful profit-taking as many investors felt that the pace of the move would find a rational roof soon. Long lifters of the market may remember the summertime of 2011, when gold prices were beating their heads against a sturdily constructed ceiling just between the range of $1,870 and $1,920/toz, and after that collapsed in a heap to the $1500 area for the next couple of weeks.
Perhaps, even "gold-enthusiasts" are afraid of something similar being repeated this time, although all major factors are in favour of the further rise of precious metals remaining intact. Gold, silver and other metals, as well as some hotspot stocks with their well-functioning business processes and monetisation schemes, seem to be a preferred investment for some funds and private persons compared to the cash assets nominated in U.S. Dollars or in Euros as the "money printers" in America and Europe are running. The balance sheets of the Federal Reserve and the European Central Bank both added more than eight trillion altogether with the pretext to "save" the financial system and the global economy during the pandemic.
By the way, silver spot prices reached $49.80 in 2011, although they dropped in September of the same year to $26 per ounce "only". So, the current rise "only" to $26 on very high levels during these days of July 2020 can be seen to resemble a pygmy jump. Logically speaking, the rise in gold prices could also amount to at least a few hundred Dollars more per Troy ounce since the maximum of 2008 was then rewritten by almost $900 in 2011, while in 2020 the pre-coronacrisis New Year's peak near $1611 for gold spot prices has been surpassed so far by less than $400. Of course, it is worth noting that rational calculations could easily be out of sync with the reality of our irrational times.
Almost the similar considerations gave rise to volatility jumps today also in currencies, which ran somewhat ahead of the "normal" rise within the natural concept of "the emperor wearing no clothes" for the Greenback. To continue yesterday's analogies with a well-known story by Hans Christian Andersen, a vain and naked king who was mocked by the crowd, yet he was not dethroned or removed from his power. So, following the "fashion trend" to get rid of the excess volumes in U.S. Dollars, the market crowd also draws lines for itself at some particular but probably intermediary levels to make pullbacks, but to continue moving again after buying some fresh dips which are still located higher than the peaks of the previous week. Similar movements are observed for EUR/USD, which slipped from 1.1780 highs to below the 1.1700 area today, but again climbed to 1.1750. The AUD/USD feels a mental stumbling block, when trying to approach 0.72 or even 0.7150. The Aussie is still well-supported on levels in between of 0.70 and 0.71.
This is happening because currency markets are expecting a new surge in demand for the Old World's public debt, as the European Commission is planning to borrow more money to finance the New Generation EU stimulus package. Australian bonds are in demand not only because of the higher coupon yield compared to their U.S. and European counterparts, but also for some other reasons mentioned in this piece.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2021 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Telerade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Telerade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.