A “perfect storm” of surging government debt levels, plunging real bond yields, rising coronavirus cases and deteriorating economic forecasts pushed the value of gold to an eight-year high last week, and Shayne Heffernan, Founder and CEO of HEFFX currently project the metal to top its all-time high within the following twelve months.
Gold touched $1,777 an oz. today, its highest level since February 2012 and coming within striking distance of the psychologically important $1,800 resistance level.
What drove the yellow metal’s price action wasn’t simply an alarming rise in confirmed virus infections and also a weakening U.S. dollar. The dollar declined the most in three weeks as the yen and euro strengthened amid gains in world shares.
Looking more long term, gold continues to search out support from negative yields, both real and nominal. the amount of negative-yielding government bonds around the world rose back above $13 trillion last week for the first time since March. The high of $18 trillion was set in August of last year.
The real 10-year Treasury yield traded as low as negative 0.678%, a level we haven’t seen since May 2013. As I’ve shown a number of times before, gold trades inversely to bond yields, and when they turn negative, it’s like rocket fuel for the yellow metal.
IMF Lowers Its 2020 economic growth Forecast. more Money-Printing Ahead?
Meanwhile, the International monetary fund (IMF) lowered its economic growth forecast for 2020. The global economy is currently projected to plunge nearly 5% this year, a downward adjustment of 1.9% points from the IMF’s April forecast.
“The COVID-19 pandemic has had a additional negative impact on activity in the first half of 2020 than anticipated, and also the recovery is projected to be more gradual than previously forecast,” IMF economists wrote in the June 24 report.
This could spur even additional monetary and fiscal stimulus from world central banks and governments, which is already unprecedented. The Bank of England (BoE) recently added to its bond-buying program, and the Federal Reserve has signaled that it will be keeping rates near zero.
Get this: As of right now, the Fed’s balance sheet stands at $7 trillion, or 33% of U.S. GDP. And earlier this month, the Treasury’s public debt soared past $26 trillion, an unbelievable 120% of the complete U.S. economy.
This isn’t sustainable, obviously, and a few analysts now see dollar-denominated gold hitting a new all-time high within the next twelve months, even in a risk-on environment. Both Morgan Stanley MS and Citigroup C maintain their call for $2,000 gold by mid-2021.
London-based research firm Edison goes even further. in a note dated june 23, analysts there commented that gold ought to be near $1,900, “with the potential for this to rise to in excess of $3,000.”
Gold’s Best Year Ever (So Far) in dollar Terms
So far in 2020, physical gold is comfortably the best performing major asset. It’s outperformed not just the S&P 500 but also the U.S. dollar, emerging markets, Treasuries and high-yield corporate bonds.
In fact, this is gold’s best year ever so far in dollar terms.
Historically, June has been a comparatively weak month for gold, making it a good time to think about adding the metal to your portfolio in anticipation of seasonal asset appreciation. India, the world’s second largest purchaser of gold after China, has two huge events coming up that in years past have pushed the metal’s price higher thanks to increased demand. I’m talking, of course, about Diwali and the Indian wedding season, both of which I’ve written and spoken regarding various times.
The question this year, though, is how much of an impact the pandemic will have on these huge cultural celebrations, and if gold can see a difference.
Will COVID-19 Derail the $50 Billion Indian Wedding Season?
Like the U.S., India just had its biggest one-day spike in new coronavirus cases, with approximately 20,000 reported on Monday. The Asian country is the fourth worst affected country after the U.S., Brazil and Russia, and its death toll is the eighth worst.
Again, gold demand in anticipation of the upcoming Diwali celebration and Indian wedding season has helped prices move higher heading into August and September. Were this a “normal,” non-pandemic year, the additional demand could have been such that gold may top $1,800 an ounce or more.
There are already reports of some Indian couples delaying or outright cancelling their 2020 wedding plans, not just as a precautionary measure but also to wait it out and tie the knot under more ideal conditions. Indian weddings have traditionally been grand affairs attended by large numbers of family members, a clear health risk in the age of COVID-19.
For couples who are choosing to move forward with wedding plans, there’s a new “essential”: matching face masks.
As a result of the cancellations, gold consumption in India may potentially fall as much as 50% in 2020 compared to last year, from 690.4 metric tons in 2019 to between 350 and 400 tons this year, according to one forecast.
Although this might end up being the case, it’s worth remembering that gold still plays an enormous role in several other corners of Indian culture. Indians still save in gold, with as much as 75% of Indian savings invested in the precious metal, according to Incrementum. Private households in the country are estimated to be the single largest gold hoarders in the world, with some 24,000 metric tons. That’s over three times the amount the U.S. has in its official.
There may even be some good news thanks to a healthy monsoon season, which begins this month and continues through September. It’s been estimated that a third of Indian gold demand comes from rural farmers, whose crop revenue depends on the rains delivered by a good monsoon.
This year the monsoon is forecast to be normal, and already Indian sugar producers are having an excellent season, with exports at a record volume for the second year in a row. i think this is constructive for gold demand.
Overall, the bias in prices is: Upwards.
By the way, prices are vulnerable to a correction towards 1,705.13.
The projected upper bound is: 1,818.38.
The projected lower bound is: 1,736.72.
The projected closing price is: 1,777.55.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 30 white candles and 20 black candles for a net of 10 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 66.4141. This is not an overbought or oversold reading. The last signal was a sell 4 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 61.58. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 77 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 87. This is not a topping or bottoming area. The last signal was a sell 4 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 17 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAU= closed down -7.390 at 1,776.173. Volume was 8,900% above average (trending) and Bollinger Bands were 37% narrower than normal.
Open High Low Close Volume 1,783.573 1,786.910 1,773.370 1,776.173 43,048
Technical Outlook Short Term: Overbought Intermediate Term: Bullish Long Term: Bullish
Moving Averages: 10-period 50-period 200-period Close: 1,772.54 1,730.32 1,596.70 Volatility: 7 15 20 Volume: 4,305 861 215
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
PREC.M.XAU= is currently 11.2% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future.
Our volume indicators reflect very strong flows of volume out of XAU= (bearish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 15 periods.