Market Overview

27 April 2020

Gold in Escape of Fears

Gold is increasing its traditional role as a safe haven asset while a lot of fears have seen to squeeze markets and perhaps as a result, investors have sought protection amid uncertainty and high risks. The pandemic supports the mood for risk off and increases demand for hedge instruments. The decline in new cases of infection in most countries only strengthens the appetite for safe haven assets while economic indicators and released data are still reflecting a severely negative picture.

The rise in gold prices is fueled by the Federal Reserve (Fed) and other central banks' policies. The unprecedented support of the economies by the pouring in of enormous liquidity and extremely low interest rates are dramatically increasing world money supply. This may lead to several reasons for a rally in gold prices. One of the factors may be that the liquidity provided by central banks for the banking system and to support the stock and debt markets is not going into the real sectors and is reinvested in safe haven instruments. Gold is traditionally considered as one of these instruments. Money supply puts pressure on inflation and worldwide investors usually seek to mitigate the risk of rising inflation and to protect savings via gold.

These are the reasons why gold prices are pointing toward $1800/toz, a maximum level since 2012.

The last week of April 2020 may support gold if the Fed is to maintain its recent call for a loose monetary policy in order to support the US economy in its FOMC meeting on April 29. Gold prices may receive an additional impulse to rise to the area of $1770-1790/toz. The support level for gold is at the $1690-1700 area.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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