Gold flew too close to the sun and got its wings singed, and now profit takers are going to punish it. But while the likes of Steve Forbes (of Forbes media fame) insists that gold is going to remain our go-to safe haven in a time of coronavirus, no matter how hard the gold bugs hope, this isn’t going to be a story in which the precious metal shoots straight to the top.
Forbes’ take is this: “The trillions of dollars being spent to save our virus-battered economy are stoking fears of inflation. Gold has always been a hedge against the government’s economic blunders.”
But it’s not going to go that smoothly for the gold bugs. The profit-takers will see to that.
Last week, gold hit $1,750 an ounce.
By Monday, it was already down to ~$1,707.
“With gold’s recent rally looking to be stalling, there may be net liquidations in the short term as speculators book profits,” Kitco quoted Mitsubishi analyst Jonathan Butler as writing in a note to investors on Monday. “Gold looks as though it may have overreached itself for now at the recent highs of $1,750.”
Related: Loans From China: A Private Political Hot Potato The profit-takers know when gold has overreached, and then they start selling it off to take profits, and this is how it’s going to go as the world works its way through the devastation of COVID-19.
And now, there will be an added risk for gold: All the talk about gradually reopening the U.S. economy. This will see a bump in equities as investors start moving some of their money away from commodities and back into equities.
For the first part of this week there isn’t likely to be much upward movement in gold after three days of downtrend. On Wednesday, the U.S. Federal Reserve is expected to make some policy announcements. On Thursday, the European Central Bank is expected to do that same.
So for the next two to three days, gold will either be shedding some of its gains from last week, or it will be holding steady, waiting to see what the central banks will do.
And European stocks have already embarked on an upward trend as of Monday in anticipation of an economic re-opening and central bank policy action.
And then there’s the U.S. dollar, which is usurping some of gold’s glory.
On the positive side, April consumer confidence reports are weighing in on gold to balance out the profit-taking somewhat. Consumer confidence took a major hit in April--a record-breaking hit, in fact. For this month, the consumer confidence index plunged to 86.9 points, from 118.8 in March. It hasn’t hit that low since 2014, according to MarketWatch.
It doesn’t help the gold bugs’ case, either, that the World Bank sees gold prices averaging $1,600 for 2020, against 2019’s average of $1,392.
In the end, it’s a gold rally, but one that isn’t going to make anyone rich. It’s pure and steady safe haven status quo.
By Tom Kool for Safehaven.com
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