Gold price falls below key $1,650 level
Feb. 25, 2020 Update: Gold prices had been holding at the new support level of $1,650 an ounce after falling below them early this morning. However, they have veered back under that key level of $1,650, suggesting that the $1,700 price so many have been looking for may not happen—at least not yet, anyway.
UBS analyst Joni Teves said in a note that gold could reach $1,700 an ounce, but she has set her three-month target at $1,650 an ounce. She said since many speculators were already bullish on the metal, there was a risk of a pullback, and that’s exactly what we’re seeing today, even as the equity market continues to decline.
The early-morning hours brought a bit of relief for stock indices and weighed on gold prices, but now both asset classes are in decline. Disappointing consumer confidence data didn’t appear to affect the yellow metal at first, as the early-morning decline reversed course. However, investors may be rethinking their strategy.
According to the U.S. Conference board, the consumer confidence index returned a reading of 130.7 for this month, which was little changed from last month’s reading of 130.4. Economists had been expecting February’s reading to come in at 132.6.
New resistance at $1,688?
Feb. 24, 2020 Update: The gold price soared again early this morning, but it appears as if the new resistance level is around $1,688. The yellow metal’s price bounced off that level twice in early trading this morning, although buying activity remains strong as fears about the coronavirus reach new heights. For now, the next psychological level for the gold price will be $1,700 an ounce, but the price will have to beat that $1,688 level first.
Meanwhile, stock indices are getting pummeled this morning as concerns about a global pandemic drive a strong risk-off sentiment. Investors are responding to the growing number of reports about the coronavirus in countries other than China.
Many investors are now expecting other countries to cut their interest rates in response to the outbreak now that it’s showing signs of worsening outside China. Italy in particular is in the crosshairs as the nation essentially quarantined about 50,000 people in and around Milan, where a local outbreak has occurred. More than 150 people in Italy have been infected.
More than 77,000 people in China have been sickened by the coronavirus, which has killed over 2,400 people there.
Gold prices continue to power higher
Feb. 21, 2020 Update: The gold price is up nearly 2% today, approaching $1,650 an ounce. The yellow metal has reached its highest price in seven years after the largest weekly increase in over six months. The S&P 500, Nasdaq Composite and Dow Jones Industrial Average are all in the red today, as is the U.S. Dollar Index. Thus, for today at least, it seems like the traditional negative correlations between gold and other assets are back in place after weeks of in-step upward momentum across assets.
Today’s gold price increase is driven not only by coronavirus fears but also disappointing manufacturing numbers from the U.S. IHS Markit’s Purchasing Manufacturers Index (PMI) for this month slipped to 50.8 from last month’s reading of 51.9. Consensus suggested a reading of 51.5 for this month.
The firm said sentiment in the manufacturing sector has reached its lowest level in six months, while sentiment in the service sector is at its lowest level in over six years. Excluding the 2013 government shutdown, business activity in the U.S. contracted for the first time since the global financial crisis this month, according to economist Chris Williamson at IHS Markit.
Gold is overbought
Saxo Bank analyst Ole Hansen said today that the gold rally carried the metal into overbought territory on a short-term basis. His 2020 target for the gold price was $1,625, and since the yellow metal already achieved that target, he doesn’t see anything that can halt or pause the rally. He expects the coronavirus outbreak to continue driving prices higher and higher. Based on Fibonacci levels, the next target is $1,690 an ounce, while support is at $1,595.
Hansen said in another note earlier this week that holdings in exchange-traded funds backed by gold bullion increased by 1.3 tons per day on average in January. This month holdings have been rising by an average of 1.9 tons per day despite the strength in the dollar and recovering markets.
Gold price holds above $1,600 an ounce for a second day
Feb. 19. 2020 Update: Gold breached the key psychological level of $1,600 an ounce on Tuesday and is now holding steady above it a full day later. The recent uptick in the gold price has been widely attributed to growing concerns about economic impacts from the coronavirus. However, one firm argues that there are other reasons to be bullish on the yellow metal beyond the current outbreak.
Deutsche Bank analyst Michael Hsueh noted that trade protectionism continues. Additionally, central banks in emerging markets have been seeking an alternative to the U.S. dollar as a reserve asset, and they have found it in gold. He also sees risks from the “multi-polar geopolitical regime.”
He expects downside in spot gold prices to be limited by a possibility that the negative correlation with the U.S. dollar will appear again. He notes that the negative correlation between the two assets has fallen to a cyclical low. Gold prices are up while the U.S. dollar remains close to one-year highs.
Hsueh recommends a long gold, short volatility strategy in step with his year-end gold price target of $1,640 an ounce.
Other than the coronavirus, he also looks at the Federal Reserve’s review of strategy, tools and communications as the next most important point for the precious metal. He predicts the gold price will move even higher if there is any commentary suggesting upcoming reformulation of the inflation target methodology.
On the other hand, he said if the Fed turns hawkish, inflation strengthens sustainably, or global growth rises much higher than expected, it would be bearish for gold.
Gold rises more than 1% to surpass $1,600 an ounce
Feb. 18, 2020 Update: The gold price broke through a key psychological level today, smashing through $1,600 an ounce and then continuing on with a strong gain of more than 1%. The next major resistance level will be in the $1,610 to $1,614 range, but for now, bulls are controlling the price of the yellow metal. If the gold price falls back below $1,600, the support is estimated at around $1,589.
What makes today’s increase in the gold price particularly interesting is the fact that it comes the same day as strong data from the New York manufacturing sector. The New York Fed said its Empire State manufacturing survey climbed to 12.9 this month, indicating strength in business conditions in the industry. In January, the reading was only 4.8. Consensus had been looking for a reading of only 5.8. This month’s reading is the highest since May 2019.
Gold investors seem less focused on economic data and more focused on economic uncertainty related to the coronavirus. Global stock markets were weaker today as the S&P 500, Nasdaq Composite and Dow Jones Industrial Average were all in the red.
Gold prices headed to $1,800/ oz.?
Feb. 14, 2020 Update: The gold price could be heading to $1,800 per ounce in the next few months, according to one analyst. Midas Touch Consulting analyst Florian Grummes said in a report this week that the yellow metal rallied strong last summer but then entered a consolidation period between September and December.
More recently, the gold price spiked toward $1,610 an ounce, but then it entered another period of consolidation. He believes it won’t be long before gold surpasses $1,600 again and sees a pathway to $1,800 by spring.
He said the day before Christmas, gold broke out of its three-month consolidation, unleashing “unprecedented forces in the gold market.” Only a week after surpassing $1,480 an ounce, the gold price hit $1,530.
Then when U.S. forces took out Iranian general Qasem Soleimani, the metal approached $1,611 last month to hit its highest level in almost seven years. Since then, gold has been in an other consolidation period, which has already lasted five weeks, and Grummes sees $1,600 an ounce as an important psychological level for the gold price.
If the yellow metal does break out above that level successfully, it would give the bullish trend a boost. He believes surpassing that level will result in a sharp rally, carrying it to about $1,800 an ounce. He sees downside support at $1,550 an ounce and upside resistance at $1,590 an ounce.
“The back and forth between US$1,535 and US$1,600 now seems to be taking the form of a triangle,” he said. “… Overall, Gold will likely need more time within this triangle. However, at some point a breakout to the upside is much more probable as triangles usually resolves [sic] within the prevailing trend—which is obviously up.
On the other hand, he also said the five-week consolidation period could be an ABC correction. If that’s the case, then the gold price is in wave C, which should end a little below the January low of $1,535 an ounce. Anything below that price would call the bullish setup into question.
Whatever turns out to be the case, he believes the consolidation could last another one to three weeks. IF the price surpasses $1,590, he predicts a rapid rise to the neighborhood of $1,645 an ounce.
Fresh coronavirus fears boost the gold price
Feb. 13, 2020 Update: The flight to safety has begun a new as fears of the coronavirus have returned. Chinese health officials in Hubei province have changed the way they diagnose the illness, which has resulted in revised coronavirus numbers from the epicenter of the outbreak.
The number of new cases of the virus has increased sevenfold because of the change, reigniting concerns about the economic impact from it. The number of confirmed coronavirus cases increased 14,840, compared to an increase of only 1,638 the day before.
Chinese officials were requiring a positive lab test to confirm a patient as having the coronavirus. However, they have now expanded the definition to include a positive clinical test like via medical imaging. Data from a Hubei government website reveals that more than 13,000 of the new cases reported today in Hubei province were due to this loosening of the definition.
Other safe-haven assets, including the 10-year Treasury and the yen, all saw flows as sentiment shifted to risk-off. Edward Moya of OANDA also said some are concerned the trade war between the U.S. and China could flare up again if China fails to live up to its purchase commitments.
“Recession fears for China are likely to keep gold supported and wreak havoc with industrial metals,” he said in an email. “Copper prices are likely to fall under pressure and could remain stuck in at $5720-$5775 range until scientists are confident that the virus peak is nearing.”
Gold rises with equities
Feb. 10, 2020 Update: Gold prices ticked higher in morning trading today despite continued increases in the stock market. Fears about the coronavirus remain at the forefront of the markets today, supporting gold prices, although they aren’t quite serious enough to weigh on stocks yet.
The yellow metal continued to move higher, although data from the Commodity Futures Trading Commission shows that large speculators slashed their bullish positioning 17%. This could be good news for the gold market, however. According to Kitco, one bank said the lower level of bullish positioning means gold prices are less vulnerable to a large downside decline, which would happen if all the speculators started dumping the previous metal at the same time.
Saxo Bank strategists warned in a report on Friday that stock investors are underpricing the coronavirus risk on the world’s economy. Thus, they say investors should be watching the commodity prices more closely because lower prices suggest a warning that the world’s economy could experience a significant disruption.
Feb 7, 2020 Update: Gold prices pulled back initially after the latest U.S. jobs report was released. The numbers were stronger than expected as non-farm payrolls climbed 225,000. An increase of only 160,000 had been expected going into the report.
Despite the strong jobs report, gold prices bounced during the afternoon hours, climbing to nearly $1,572 an ounce. The yellow metal found support as major U.S. stock indices sold off. The S&P 500, Nasdaq Composite and Dow Jones Industrial Average were all in the red by Friday afternoon.
Macro data sinks gold
Equities may have been responding to the one negative part of the jobs report, which was the number of hours worked per week. At only 34.3 hours per week for the third month in a row, it’s clear that most Americans aren’t working a full 40-hour week.
Gold prices have also been supported by developments in the coronavirus situation. The number of new cases of the virus is slowing. However, gold is still a safe haven during the economic fallout that’s expected from the virus.
Feb. 6, 2020 Update: Gold prices rallied on Feb. 6, 2020 as fears about the coronavirus reemerged. RBC Wealth Management director George Gero said the yellow metal was supported by investors who were seeking bargains amid the pullback in gold prices, which coincided with soaring equity prices earlier this week. April gold climbed nearly $5 to $1,568 per ounce. Meanwhile the Dow Jones Industrial Average climbed more than 120 points, and the March dollar index was up 0.027 of a point at 98.185, according to Kitco.
Disease and precious metals
According to Gero, gold can’t be counted out just because stocks and the dollar index are higher. He added that buyers are looking ahead to the rest of this year and expecting the gold price to rise, so they’re buying the yellow metal in preparation of higher prices. He also said other investors are hedging their bets with gold in case stocks tumble from their high levels this week.
Feb 3, 2020 Update: The gold price pulled back slightly on Feb. 3, 2020 as U.S. stocks rebounded. Equities shrugged off the World Health Organization’s decision to declare the coronavirus an international public health emergency.
Given the strength of the equity rally, it is a bit surprising that gold didn’t drop more than it did, however. The gold price continues to hover just under multi-year highs.
Analysts from ActivTrades noted that the yellow metal continues to hold above its current support level of $1,570 an ounce. They expect the gold price to rebound as soon as there is any sign of another correction in the equity markets. They expect a rally above $1,600 if the metal climbs above the resistance level at $1,585 an ounce.
JPMorgan on gold price drivers
JPMorgan analysts said in their report on Feb. 3, 2020 that demand for safe-haven assets and declining U.S. Treasury yields have supported the gold price. The market is also pricing in an increased probability of the Federal Reserve cutting interest rates again in June.
Gold no longer has the benefit of the dispute between the U.S. and Iran to support it. JPMorgan analysts note that the yellow metal has been lagging Treasury yields recently, although they didn’t when the dispute with Iran was occurring. They said it seems as if gold’s valuation is normalizing against Treasury yields. The metal built up a $130 per ounce premium against Treasury yields last month, but the premium fell to approximately $94 an ounce.
Geopolitical concerns to drive bullion strength?
Worries about physical demand related to the coronavirus are also believed to be driving gold. The analysts say the price is probably discounting a significant hit on retail sales in Asia, which sees over 60% of the world’s demand for gold jewelry, coins and bars, including India.
Gold prices did well in 2019 as problems and worries swirled, but analysts generally expect continued strength in the yellow metal in 2020. Credit Suisse analyst Fahad Tariq said he expects the price to average $1,540 per ounce this year, peaking at $1,560 per ounce in the first half of the year before falling gradually to $1,525 per ounce by the end of the year.
This article will focus on developments in the gold price in 2019 and 2020 and factors that have been affecting prices over the last couple years.
Gold price tracker
In mid-to-late January, gold was trading at $1,582 an ounce, compared to $1,517 at the beginning of the month. The current gold price is the highest it has been in the years following the financial crisis. A black swan event which is driving traders to the metal is the virus emerging out of China. While it is unclear how bad the outbreak of coronavirus is, it already starting to impact the economy. CNBC is reporting that automakers are evacuating workers from China due to the outbreak.
Federal Reserve is a factor
Early in January, The price of gold was at its highest levels since 2013 at $1,588 an ounce, before settling at $1,567.7 for a spot ounce at the time of this writing. What will come next? No one is sure, although analysts are now turning with favor to the precious metal as prices raise. Stay tuned for further updates and see below for some prior commentary on how gold price trading works.
Following the Fed’s decision in December, spot gold inched up to $1,478 per ounce. The central bank chose not to cut interest rates again largely due to better than expected consumer prices. Analysts at OCBC Bank told Reuters that the global economy appears to have stabilized after more than a year of uncertainty.
Paul Schatz of Heritage Capital told Yahoo Finance that gold will continue to rise in the 2020s. It could go up to $2,500 or $3,000 per ounce from current levels. It’s not just gold ETFs and institutional investors driving up demand for gold. Wealthy individuals are also hoarding physical gold.
Who is buying gold
A positive surprise in the U.S. consumer confidence index weighed on gold prices on Jan. 28, 2020. The U.S. Conference Board said the index climbed to a January reading of 131.6, compared to December’s reading of 128.2. Economists had been predicting a reading of 128.2 for January as well. January’s reading is the highest consumer confidence reading in five months.
Here’s a look at where gold prices have gone over the last 100 years, courtesy MacroTrends.net:
Gold price per ounce chart
Live Gold spot price chart
Gold price by GoldBroker.com
Gold price outlook
The metal could face some challenges in 2020 if inflation goes up. Higher inflation could encourage the Fed to raise interest rates. The U.S.-China trade deal is still unpredictable, but a global economic stability could also hurt demand for safe haven precious metals such as gold. However, an analyst predicts that gold could jump to around $1,700 per ounce in the next 2-3 months.
Wolfe Research analysts John Roque and Rob Ginburg told investors in December that gold was “very overbought” in August-September, and it has corrected since then. Now it is set to make its next short-term move in January-February of 2020. The analysts predict the yellow metal could surge up to 15% in the next 75 days.
According to Wolfe Research, there have been seven “turns” in gold prices since 2015, and each time the metal has rallied around 15% over 75-80 days.
The U.S. Federal Reserve decided to keep rates unchanged following its meeting in December. The central bank also signaled that it’s unlikely to change the rates in 2020 amid low inflation. It is looking to change the interest rates once in 2021 and then in 2022. The Federal Reserve expects moderate economic growth in 2020.
What analysts are predicting
The gold price outlook for 2020 is not that clear. This is because there are mixed signals about the state of the U.S. and global economy. The U.S. job market remains resilient, and global equities continue to perform well. The S&P 500 is up nearly 25% this year. JPMorgan analyst Dubravko Lakos-Bujas expects the S&P 500 to rise 8% in 2020.
In the few months of 2019, there was a lot of noise about the inverted yield curve in the U.S. Historically, the yield curve inversion has been a sign of an impending slowdown. But private consumption remains robust in the U.S., showing the resilience of the world’s largest economy.
Leading European and Asian nations are planning to unleash fresh fiscal stimulus to counter the slowdown in trade, manufacturing, and consumption. The potential fiscal stimulus should help boost economic growth in the year ahead.
Iran and precious metals
Experts said the gold price would stagnate or go down as stocks soared; however, as of Jan. 6, 2020, this has not been the case. In just the last few days, geopolitical tensions have skyrocketed amid serious concerns about a potential conflict in Iraq and Iran. The assassination of General Soleimani (former head of the Iranian Revolutionary Guard) even if well deserved, brought back memories of the disastrous invasion of Iraq in 2013. Investors have flooded into safe-haven assets such as gold and even cryptocurrency. Oil prices have also soared amid concerns over disruption to supplies.
Factors affecting performance
The U.S.-China trade tensions, federal rate cuts, easier monetary policies all over the world, and massive gold buying by central banks all ensured that gold had an impressive performance in 2019. With only a few weeks left in 2019, most investors had an optimistic gold price outlook for the next year.
More problems typically mean higher gold prices, but despite the positive economic signs we’ve been seeing, there are still a number of reasons to believe that investors will be rushing to the safety of gold and other haven assets. The U.S.-China trade war was the biggest reason behind gold’s rally in 2019, and it will likely remain the biggest driver.
Trade deal coming?
Two of the world’s largest economies have agreed to a partial accord, and the phase-one of the trade deal could be imminent. But President Donald Trump has warned that if the trade deal is not signed by Dec. 15, the U.S. could impose tariffs on more Chinese imports, escalating the already complicated trade tensions.
The U.S. presidential elections will have a direct impact on the trade war, and indirect on gold. President Trump has signaled that he could wait until after the Presidential election to sign the trade deal with China. Given President Trump’s mood swings, I wouldn’t even attempt to forecast anything about the trade war.
Another reason is that the U.S. Federal Reserve has maintained a dovish stance on rate cuts. A series of rate cuts this year have prompted investors to shift a portion of their assets to safe-haven investments such as gold. Analysts at UBS Securities and Goldman Sachs expect gold prices to surge to $1,600 in 2020. They have also warned that the yellow metal could settle at around $1,400 by the end of next year.
If the global economy witnesses a slowdown in 2020 as several analysts and economists have predicted, the Fed will lower rates further, the equity markets will decline, and gold will become a safe haven investors will rush to.
Standard Chartered analyst Suki Cooper told Bloomberg that the gold rally in 2019 was largely driven by the U.S.-China trade war and central banks purchasing massive amounts of bullion. But gold will get its next push from “retail investors as risks remain skewed to the upside.” Cooper expects gold to hover around $1,570 toward the end of 2020. A similar trend was seen in 2011 when retail demand drove gold to a record high of $1,921.17 per ounce.
Ken Lewis, CEO of OneGold, commented in January 2020 on using gold as a hedge:
“During times of economic unrest or uncertainty, the world turns to precious metals as a safe-haven asset. In the past, this hedge was only available to those with connections, portfolio managers, or access to large funds. New technology is leveling the playing field, giving retail customers quick, cost-effective access to this wealth preservation safety net.”
Gold price calculator
Jan 28, 2020: Added new introduction and updated the price tracker section.
Jan 29, 2020: Live gold prices calculator added.