Company / Analytics

Analytics, 26 March 2020

Gold Price Rally

Gold Price is rising driven by moves by the Fed to purchase treasuries and securities and looming gold shortage; time to buy some gold Gold Prices Tuesday posted their largest daily percentage surge in more than a decade driven by the closure of major gold refineries due to government lockdowns and moves by the U.S. Federal Reserve to purchase an unlimited number of treasuries and securities to support the financial market from the cash rush caused by the coronavirus pandemic.

Gold Prices posted their largest daily percentage surge in more than a decade. The price surge is driven by the closure of gold mining operations and moves by the Federal Reserve to address the Coronavirus crisis.

The U.S. Federal Reserve announced the purchase of an unlimited amount of treasuries and securities to support the financial market from the cash rush caused by the coronavirus pandemic. The Feds move to purchase an unlimited number of assets is seen as a systematic decision to destroy the dollar, which is good for gold’s potential. Following the announcement, the US dollar index, measured against a basket of six currencies fell 0.77% to 101.697.

The gold rush has also been caused by the closure of the world’s major gold refineries due to measures (lockdowns) instituted by governments to prevent the spread of COVID-19. For example, Valcambi, Argor-Heraeus, and PAMP, which together process around a third of total global annual supply have suspended production in Switzerland for at least a week, as gold is a non-essential industry. The refineries have only been left to do online sales.

With the closure of the gold mines due to the government lockdowns, it’s clear that the Coronavirus’ impact on mining not only prevents expansion of supply but could also contract production at a time when demand for gold is surging.

Following news from the Fed and the closure of leading gold refineries, the Gold for April delivery GCJ20, -1.246% on Comex rose $93.20, or about 6%, to settle at $1,660.80 an ounce, MarketWatch reported.

Why you should maintain some gold assets in the current economy

As the gold price surged Tuesday, in a research note, analysts at Goldman Sachs were of the view that the current market volatility tied to the outbreak of COVID-19 will help drive bullion prices higher.

The current gold price is not surprising as gold has always been seen as a currency of last resort, and a safe haven in times of crisis as it acts as a hedge against currency debasements when policymakers act to accommodate shocks as being experienced now.

To understand the importance of gold in today’s financial system, one needs only look at the balance sheets of central banks and international financial organizations such as the International Monetary Fund (IMF). According to the World Gold Council, these organizations hold almost one-fifth of the world’s supply of above-ground gold. Similar to the U.S. Federal Reserve’s recent announcement to pile up its gold assets, central banks around the world have been accumulating gold, reflecting concerns about the long-term global economy.

*Should you buy gold now? *

Gold is an important diversifying investment that every investor should have in their portfolio, regardless of whether one is worried about a geopolitical crisis, inflation, a declining U.S. dollar or just protecting their wealth. It’s an asset of its own and does not correlate to stocks, bonds or real estate.

We believe these are good times to buy some gold as the price is low and there is a looming shortage due to closure of major refineries; Goldman Sachs expects the gold price to hit $1800/toz [a troy ounce] in 12 months.

There are different ways of investing in gold. One can buy gold futures, gold coins, gold ETFs, Gold Mutual Funds, Gold Bullion, and even Gold Jewelry. Any of these gold products can be purchased relatively easily. But in the current market environment, it may be wise to invest in Gold Futures or mutual Funds. Futures is a derivative financial instrument, a contract to buy or sell the underlying asset on a certain date in the future, but at the current market price.

Futures attract investors with their transparency, liquidity, low risks of a transaction and the accuracy of tracking the underlying asset. Futures provide several advantages as highlighted in our recent analysis where we explore why it might be a good time for investors to consider the futures market in the wake of the Coronavirus crisis.

Investing in Gold Futures, for example, offers investors a secure option and ability to balance their portfolio without worrying about price variations for a certain period of time. Whether things go well or worse, your locked price remains the same. The gold futures market is particularly appropriate for investors whose primary objective is to use leverage to profit from rising gold prices. __________

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