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Mark O' Donnell
 · 
Research Analyst
July 27, 2020
 · 

Gold reaches unprecedented Territory

Gold reaches unprecedented Territory

Gold reaches an all-time high amidst Geopolitical tensions and the Coronavirus continuing to fuel demand into safe-haven assets. The yellow metal's spot reached a high of $1944.52 during the Asia session, smashing the record print of $1923 by $21.

Gold prints a high of $1944

Geopolitical tensions and the Coronavirus are not the only factors driving the price higher for Gold. A weaker dollar, low-interest rates around the world, and massive quantitative easing and stimulus have increased the risk of stagflation. Sluggish growth and rising inflation fuels stagflation, in which bond yields returns are virtually non-existent. Gavin Wendt, a Senior resource analyst at Minelift Pty stated that “Strong gains are inevitable as we enter a period much like the post-GFC environment, where gold prices soared to record levels as a result of copious amounts of Fed money being pumped into the financial system.” This is further backed by both Bank of America and JP Morgan having a $3,000 price target for Gold.

With the Federal Reserve speaking at the end of this week, a dovish town from Chairman Jerome Powell may send the yellow metal upwards.

In an unprecedented Territory, how do you trade Gold?

We can draw information from the Bitcoin in 2018, where the price almost touched $20,000 before experiencing a sharp reversal down to 3,000 by the end of the year. The difference between Bitcoin and Gold is that there has been a historical precedent for the metal performing as a safe haven in risk-off episodes. May it is for viable reasons or a self-fulfilling prophecy, the correlation has been stable over the past decades. With Bitcoin, it was a case of the “Greater Fool Theory” fueling the price upwards. The Greater Fool theory states that the price of a security is determined not by its intrinsic value (how much net cash flow it brings in), but the relative demand. In this case, demand for Bitcoin was up due to speculation in the cryptocurrency, pushing the prices higher. However, Gold's initial push upwards is on a valid basis, assuming that it holds its own as a haven asset. Therefore, if the macro environment continues to deteriorate, we will likely see Gold print new highs in the future.

Here is your week ahead

Wednesday, 29th July – AUD Consumer Price Index, Federal Reserve minutes and Interest Rates Decision

Thursday, 30th July – United States GDP Annualised

Friday, 31st July – China Non-Manufacturing PMI

Coronavirus cases: 16.2m
Coronavirus deaths: 648k

Happy Trading!

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