Market Overview

4 June 2021

Gold Becomes Shiny Once Again

Over recent months gold has been seen to be acting like a counter-Dollar in the market. Price movements of the yellow metal are strongly linked to the economic policy of the U.S. Administration and market perception of the Greenback.

However, a general upward trend in gold prices, that started in March 2020, remain intact. Since then gold prices rose from $1680 per troy ounce to above $2100 per ounce. Major central banks, including the Federal Reserve (Fed), have been conducting ultra-loose monetary policy since spring 2020. And that means close to zero interest rates and unprecedented stimulus programs that provide vast amounts of liquidity.

But the side effects of cheap money and the rising supply of the Dollar result in the weakening of the U.S. Dollar in the Forex market and capital outflow to various other assets. This process largely explains rising stock markets worldwide, commodity and food prices, including gold. The yellow metal is valued in the U.S. Dollars and weakening of the latter usually means higher prices for gold.

All the above mentioned factors are expected to remain constant in the near future. The Fed insists on close to zero interest rates until 2023. The U.S. Administration is pouring money into the American economy alongside the Fed.

So, rising gold prices may be expected over the coming months at least. Needless to say this trend may suffer some corrections, which is a circumstance that has been noticed since August 2020 through to March 2021. Less noticeable correction is currently in place as gold prices retreated from May highs at $1900 per ounce to $1870. The technical picture suggests that the correction may deepen even to $1810-$1830 per ounce. But overall a high possibility of another spike to $1920-$1960 is likely. However, this upside movement may be slow and less nosed up.

Nevertheless, some factors may harness such an upside movement and, however strange it may sound, high inflation in the US at the current time may mean a tightening of monetary policy. If prices pick up some more steam in the U.S. and globally, as well as economic recovery, the Fed may revise its outlook and actions towards tightening monetary policy earlier than expected. This might be the end of the existing rising trend in gold prices. And the trend may reverse nose down, or at least prices would be limited by wide trading ranges.

 

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.

Mark Goichmann
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.72% 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.
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