Until the end of this year, the dynamics of gold prices will be unpredictable, since recently the market has been dominated by investment demand, which most of all depends on emotions and sentiments, according to analysts and market experts interviewed Herald of the Gold Producer.
Amid strong demand for safe assets amid economic turmoil, the value of gold has grown by 22% YTD. In the third quarter, the price of the metal surpassed the level of $ 2,000 an ounce for the first time, setting a historic record of $ 2,089.2 on August 7, and ended the quarter with a 3.9% increase.
And although gold is trading around $ 1,900 today, the market sentiment is more than optimistic.
The news of Donald Trump’s positive analysis for COVID-19 initially sent the stock market down and gold and the US dollar up. In his campaign against Joe Biden, according to national polls, Biden is still in the lead. The market considered the recent events unfavorable for Trump’s chances of re-election, which is considered potentially negative for the dollar – hence the moderately positive reaction of the US currency to the news of the infection.
Precious metals continued their recovery in price after the correction, which, given the relative magnitude of the decline, did not damage the positive outlook for the coming months.
During the third quarter, the market saw a rapid rally, with historical price peaks following one another amid demand for safe assets amid growing concern for the state of global economies, which are gravely suffering from the consequences of strict quarantine measures introduced to combat the spread of coronavirus infection. In September, the market went into correction and is now slowly recovering.
“The current price correction has already ended, reaching $ 1850 / ounce. In the future, the consolidation of the gold price from $ 1860 to $ 1900 per ounce is possible,” said the head of the precious metals operations department Ural Bank for Reconstruction and Development (UBRD) Evgeny Afanasyev.
In his opinion, the correction of precious metals was influenced by the general flight of investors from risks against the background of the announcement in some countries of the second wave of restrictions due to the coronavirus and an increase in the number of cases. “In addition, political tensions are increasing in the United States, where there is no agreement on new stimulus measures for the economy, and the resources of monetary regulators are limited. The combination of these factors has led to the withdrawal of funds by investors from the most liquid assets into dollars. Thus, the dollar has strengthened, the price of precious metals fell, “Afanasiev notes.
Analyst “Freedom Finance” Evgeniy Mironyuk also believes that the asset is correcting in price due to uncertainty with the adoption of new economic stimulus in the US, but emphasizes that investing in gold carries significant risks.
“The past correction was expected, but not with 100% probability. Strictly speaking, not a single short-term price movement in the market, especially in gold, can be called expected,” says the director of the department for analysis of financial markets and macroeconomics Alfa-Capital Management Company Vladimir Bragin… Pricing is driven largely by a variety of beliefs about the fair value of gold, and it can be anything that has nothing to grab on to other than supply and demand, he added.
“This time, psychological factors were in the foreground, for example, when gold briefly exceeded $ 2,000, this triggered a wave of profit taking, and when risk aversion led to a decline in prices, gold was no longer perceived as a defensive asset,” Bragin notes.
Some analysts do not expect a significant drop in gold prices in the coming months, others believe that investment demand will be the main driving force, but there is no consensus.
“In 2020, the dynamics of supply and demand has changed on the precious metals market: demand for shares of ETF funds, which are backed by physical precious metals, has increased,” says Afanasyev from UBRD.
“At the same time, the spread of COVID negatively affects the supply chains of precious metals to end consumers. Purchases from central banks have decreased and jewelry sales have fallen. Therefore, investment demand will significantly affect the price of gold in the future one or two quarters,” the expert summed up.
Afanasyev expects the price of gold to rise to $ 2,000 per ounce by the end of this year. In his opinion, there are several factors that can negatively affect prices – this is the emergence of a Western vaccine against coronavirus, which could give investors the illusion of economic recovery and lead to a withdrawal from defensive assets such as gold into more risky ones. The second factor is the uncertainty about the results of the US elections.
Head of Strategy Department Saxo Bank Ole Hansen also believes that after a long consolidation around $ 1920 / ounce, gold will move upward and end the year around $ 2,000.
“It is very daring to expect further growth in precious metals, especially after the price of gold has risen by more than 20% and silver has doubled. However, the powerful combination of extremely low yields, increased demand for inflation protection and the potential for a weakening of the US dollar indicates just this. “, Hansen emphasized.
Bragin, in turn, notes that demand from retail investors continues to grow, and the volume of gold in physical ETFs is also increasing, albeit at a slower pace than a few months ago.
The influence of central banks at the same time remains ambiguous, if after the liberalization of gold exports from the Russian Federation, the Central Bank of Russia does not buy gold, then the Central Bank of Turkey, on the contrary, is actively buying it, compensating for the decrease in foreign exchange reserves. Low interest rates from state-owned banks may also support quotes, as they mean a low opportunity cost to hold positions in gold.
“So further dynamics in gold will be difficult. But if it eventually surpasses the $ 2,000 mark, it will open up opportunities for a new long rally, however, most likely, we will not see this until the end of the year,” Bragin said.
Mironyuk from Freedom Finance is less optimistic, he believes that gold along with other commodity assets in the fourth quarter will continue to lose value if negative trends in the global economy prevail, and the general recession is not accompanied by rising inflation.
“During the US mortgage crisis, it lost about 30% of its value in a relatively short period. The potential closure of margin positions in gold could lead to larger price surges,” the analyst said.
Gold is now one of the most liquid assets, and also allows you to diversify your investment portfolio in times of crisis. Precious metal has already become one of the best investment instruments, thanks to which investors were able to preserve and increase their savings. Moreover, in some currencies, the value of gold has reached new record levels.
Experts World Gold Council believe that in the medium term, investment demand will play a decisive role in the dynamics of gold prices.
Gold Miner Bulletin