WILL GOLD STRUGGLE TO COME UP BACK TO IT’S POSITION?
Updated: Jun 28
Despite the stellar run in the calendar year 2020 (CY20), gold remains an attractive investment for 2021 with prices likely to inch up further.
According to World Gold Council (WGC) data, gold prices hit a high of $2,067 per ounce (oz) in August 2020 as investors flocked to the yellow metal as a safe-haven investment in the backdrop of the Covid-19 pandemic that brought global economic activity to a standstill.
In early 2021, the subsequent reopening and a gradual pick-up in the economic activity have seen the price of the yellow metal slip to around $1,857 per ounce (oz). Even then, it was one of the better performing asset class year-to-date (YTD) with a price escalation of 28 percent in CY20.
Last week we noted that Gold and gold stocks had made a short-term bottom. The action this week has confirmed such and raised hopes of battered and beleaguered investors. Now the question is, what happens next? Can gold rally back near the 2020 highs, or will they grind around at best?
The three most recent big moves in gold stocks coincided with the three most recent declines in the stock market. Keep an eye on the GDX to S&P ratio (yellow), which is currently lagging the rebound in the sector. The S&P 500 is running to new highs, and as long as that continues, precious metals are unlikely to surpass resistance.
The other “leading indicators” are mixed. The positives are Gold has shown better strength against foreign currencies, and the miners are outperforming Gold. The negatives are GDX’s advance-decline line, and GDX against the S&P 500 have remained muted during this rebound. At present, the market has confidence in an economic rebound and growth. If and when that starts to falter, capital will rotate back into precious metals, fueling the next leg higher. And the signal for that, technically, is Gold and gold stocks outperforming the stock market.
As the world economy still battles to see the highs of all the time, gold prices could recover remarkably after the outbreak stemming from the US dollar prices and other factors like vaccine rollouts.
Gold price is rising in both domestic and international markets. According to commodity experts, gold could rise further from current levels. They say that depreciating rupee, small saving schemes yield going below the rising inflation rate and rising COVID-19 fear may once again help precious bullion boost its safe-haven appeal.