With an economy that is very vulnerable due to the COVID-19 pandemic, traders and investors have been flocking to open gold trading accounts.
It is evident that 2020 is becoming a year that gold traders will not soon forget. In the month of August, the gold price reached an epic milestone as it hit an all time high of $2075 USD per ounce. However, since reaching that summit it has given back a little over 10% as investors looked to take profits.
One cannot ignore the activity in the gold market and the opportunity this to get involved in gold trading. Many analysts believe that there is much more demand yet to come for gold, and they are forecasting that gold will make even larger moves ahead.
Brief History of Gold Trading over the last Several Years
Gold prices haven’t been this high since September 2011. During that month, gold prices reached a high of $1,908.00. In the month prior to September 2011, the gold price hit a high of $1,911.00. Up until December 2012, the gold price was trading just over $1700.00. From December 2012 to June 2013, gold would drop as low as $1,197.00. For the next 6 years, gold would trade slightly above or below the $1250.00 mark.
Gold would get to its lowest point in December 2015. The price of gold went down as low as $1,046.00. In July 2016, the price of gold would reach a high of $1,373.00. It would not reach that high until June 2019 when it would reach a high of $1,452.00. Before the COVID-19 pandemic took shape, gold was already at an upward trend. The price of gold would creep upwards to a high of $1,684.00 in February 2020.
In the months since then, the price’s growth rate has increased towards the $1800.00 mark before its explosive growth over the past couple of months to reach the $2000.00 mark. This is primarily due to worries over the COVID-19 pandemic and increased tensions between the U.S & China.
For those that have considered gold trading, it may be a wonderful time to start now.
Loose Monetary Policy = Great News for Gold Traders
With a loose monetary policy and with interest rates at all time lows, gold traders have a very good reason to be bullish. The indirect relationship between interest rates and gold prices continue to take shape.
The global economy is in the midst of a significant downturn due to COVID-19. It has led to a loosening of monetary policy across the United States as well as all the rest of the countries in the G-20. This is welcome news for investors looking to get in the gold rush. It’s important to examine how many G-20 countries have an interest rate around 0% right now. Additionally, we will look at what some G-20 nations have done to stimulate their respective economies during this pandemic.
Most G-20 Countries Have an Interest Rate around 0%
The desire for the safe investment of gold will strengthen when one considers that most G-20 countries that are either at, around or below 0%. This should be very good news for According to Trading Economics, 13 G-20 countries have an interest rate of 0.25% or less. 8 G-20 countries have an interest rate of 0% and 2 G-20 countries currently have negative interest rates.
There is a belief among those in the market that the U.S will need trillions of dollars in order to steer the economy through the rough terrain known as the COVID-19 pandemic. The U.S has also already passed a $2 trillion stimulus package back in March and is the midst of debating the passage of s second stimulus package. A $659 billion dollar PPP loan program geared towards small businesses was passed as well.
The Australian government passed a $164 billion dollar stimulus package. This is primarily geared towards wage subsidies, household income support and assistance for business. The stimulus is also geared towards providing assistance for industries that were affected greatly.
In addition, Australia passed a $15 billion dollar package to help small banks and other financial institutions through the investment of asset-based securities and residential mortgage backed securities. Australia’s state and territory governments have issued stimulus packages that total nearly 32 billion dollars.
Australia cut its key interest twice in the month of March. Its key interest rate is down to 0.25%.
Gold traders are bullish in the near future due to the lack of certainty with regards to economic growth in the future and the certainty that there will be bad news in the near term on the macroeconomic front for many nations.
Canada has provided $212 billion dollars in direct aid to households and companies. Wage subsidies are included as part of this funding. Workers received paid sick leave, employment insurance and childcare benefits. Additionally, $20 billion dollars was put towards the country’s health system so that more tests can be performed. It was also used for medical supplies and for the development of a vaccine.
In addition, Canada has also aided firms by providing 95 billion dollars in credit facilities.
In March, the bank of Canada loosened their key rate by 150 base points to 0.25%.
China has been averaging with regards to fiscal measures during COVID-19. In total, China has provided RMB 4.6 trillion in fiscal relief as they hope to tackle several key areas. One key area comes with regards to preventing this epidemic from spreading further. Other key areas include unemployment insurance and an increased emphasis on improving the public sector.
Other efforts by China in monetary policy include the injecting of cash into the nation’s banking system via reverse repos and MLF loans.
In terms of interest rate cuts to re-lending facilities and re-discounting facility, China is looking for targeted interest rate cuts across banks of all sizes and small-sized enterprises.
Increased Tensions Between U.S & China = Increase in the Price of Gold
Another catalyst for the increase in gold has been the consistent tension between the United States and China. This has been an issue that has reared its ugly head over the past few months.
Back in May, gold reached a then seven-year high of $1,741.65 as trade relations between U.S & China had declined to the point in which the Trump Administration was looking to stop chip supplies from going an already blacklisted Huawei Technologies.
This prompted China to counter with threats to impose restrictions on Apple, Qualcomm and Cisco.
In addition, gold trading activity also rose due to the U. S’s disapproval of China’s treatment of Hong Kong based on laws that placed restrictions on democracy within the city.
In July, U.S and China tensions would continue to be tense. Due to this as well as COVID-19, gold would continue to stay steady at the $1800.00 level. Tensions would intensify since China announced sanctions on Lockheed Martin Corporation, a U.S based aerospace firm.
Towards the end of the month, tensions would further escalate between the two countries because the U.S closed a Chinese-based consulate in Houston. In retaliation, China would close down a U.S consulate placed in Chengdu, China.
For those that are into gold trading, I would be certainly be keeping an eye on any news involving the beef between U.S and China.
Global Consumer Confidence Declined Significantly
Further evidence of economic doubt can be found in global consumer confidence. In the second quarter, global consumer confidence declined by a record 14 points to a total of 92. This total of 92 is a signal of a pessimistic point of view towards the market. This makes it increasingly likely that investors will head towards gold.
The U.S Dollar Decline = Great for Gold
It has been no secret that the greenback has been selling off like crazy so far in 2020. This could be seen in the U.S Dollar Index. For three years, the U.S Dollar Index appears to have formed a double top. Like a blitzing linebacker breaking through a good offensive line, the U.S dollar broke through to the downside and broke an uptrend that lasted for 9 years.
Given the length of the recently broken uptrend, it is certainly plausible that the
U.S dollar could be headed for a bear market that may last as long as 10 years.. If this occurs, then this will make gold a very attractive option as a safe haven.
The Future is Bright for Gold Trading
If you are thinking of getting into gold trading, this is a very good time to get in. With so much market uncertainty, there is plenty of reason to believe that gold is on the verge of making even bigger moves. Gold traders are bullish in the near future due to the lack of certainty with regards to economic growth in the future and the certainty that there will be bad news in the near term on the macroeconomic front for many nations.
Many key market players have a bullish view on gold. Van Eck is of the belief that gold is attractive because we are in a deflationary period. According to Van Eck’s portfolio manager for their gold mutual fund, gold will thrive since many central banks are taking significant measures with regards to printing stimulus money for the sake of dealing with the COVID-19 pandemic. Van Eck believes that gold will reach $3,400.00.
Michael Cuggino, CEO of the Permanent Portfolio, believes that gold is cheap and that it still has room for further growth. Like many other analysts, he believes that the catalysts are a weakening U.S Dollar, investor uncertainty and the potential for more stimulus packages in the U.S economy. He believes that gold will reach a target price of gold. Cuggino believes that gold will reach $4,000.00.