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Analytics, 19 May 2020

Gold rallies toward the highest close in 7 years

Gold is rallying for the second time this year. The prices headed sharply higher on Monday, putting gold on track for its highest settlement since 2002. The rally followed the US Federal Reserve chairman’s pessimistic views on the US economic recovery and Covid-19 pandemic. Shall we expect an even bigger rally coming?

Bullion has oscillated between a high of $1,788 to a low of $1,676 an ounce in recent weeks, underpinned by higher worries about the harm of COVID-19 pandemic to the global economy and the monetary-policy response by central banks to limit the impact of business closures.

Gold for June delivery on Comex GC00, -0.23% GCM20, -0.23% climbed $14.50, or 0.8%, to $1,770.80 an ounce, putting the metal near its highest settlement since 2012 if it holds its current level. Prices for the most-active contract are around their highest since April 14, according to FactSet data.

Monday’s gold rally follows last week’s movement of prices for safe investments. Last week, prices of “safe” investments — such as Treasury bonds and gold — continue to rise, suggesting that some investors remain convinced the current market rally is unsustainable.

At the close of the market on Friday, gold was up 2.8% for the week with June gold futures going up by $4.90 an ounce at $1,746.00. On the other hand, July Comex silver prices were last up $0.609 at $16.77 an ounce.

The gold price has since gained 2.5% based on the most-active contract at Friday’s close. Meanwhile, July silver SIN20, 2.14% surged 63 cents, or 3.7%, at $17.70 an ounce, after rallying by 8.2% last week, according to Market Watch.

Remarks by Fed chairman Jerome Powell that the US economy was unlikely to recover until next year has caused investors to seek refuge in the safe-haven asset. Commodity analysts believe that the gold rally is part bolstered by the steady rise in stocks since touching their recent low point in late March. Investors continue to buy bullion as insurance against further corrections on the stock market which is filled with uncertainty and fear of overpricing.

This is the second time gold is rallying this year. The second time the rally is caused by moves by the Federal Reserve.

In late March 2020, gold prices posted their largest daily percentage surge in more than a decade, driven by the closure of gold mining operations 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.

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.

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. When gold rallied in March, Goldman Sachs predicted that gold price will hit $1800/toz a troy ounce in 12 months. It’s been less than three months since that prediction, and gold prices are likely to keep rising. There is a looming shortage as major gold refineries - Valcambi, Argor-Heraeus, and PAMP, which together process around a third of total global annual gold production - were forced to suspend their operations in March, and though they have resumed, are only operating partially. 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. Thus 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.


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