Gold swiftly shoots past $2,000

6 thg 8, 2020

Gold finally shoots past $2,000 with geopolitical risk, the coronavirus pandemic, and the recent explosions at Beirut proving to be great tailwinds pushing the metal past the significant psychological level. However, many think it still has legs to run.

The yellow metal is up 35% this year, with investors looking for a haven asset that provides a larger return than the current abysmal yields seen from government treasuries. Paul Wong, a market strategist at Sprott Inc, stated, “The stage has been set for Gold to continue to climb higher.” Furthermore, he also stated that “[they] see increased fiscal spending ahead, extremely accommodative monetary policy in place for years and challenging economic recovery.” Gold peaked at $2,055 an ounce as of the 5th of August.

This begs the question – has this become a case of buying Gold for the bull run, buying Gold as a safe haven, or using the fact that people believe Gold is a safe haven as an excuse to buy in the bull run? Technical indicators show that Gold has been deeply overbought, with the 14-day RSI showing a print of 88. Furthermore, although there has been a record influx into Gold ETF’s this year, there is still no sign of Retail Robinhood traders pumping up their positions in these ETF’s like they did Oil ETF’s, Chesapeake or Kodak.

Gold providing Equity like returns
If we believe that the markets paint a picture, it is currently painting an interesting and inconsistent one. As of today:
• Brent Crude broke a psychological price level of $45, hovering a 5-month high
• NASDAQ has been breaking all-time highs – a market which would be considered expensive to many investors has become even more expensive amidst widespread unemployment and significant economic tensions
• Bond yields are the lowest it has ever been, with real yields for treasuries being negative
• The dollar has weakened over 10% since its peak

The market is painting a picture of uncertainty – safe havens are at an all-time high. However, risk assets are also pushing higher. It’s like stating that both long and short bets on the economy are profitable. Furthermore, SocGen strategists commented that “While the correlation between Gold and Equities has turned unambiguously positive since the March lows in risk assets, another serious bout of risk aversion could cause the performances of equities and gold to diverge.”

Furthermore, It is interesting to note that this is what is expected when holding both risk-on assets such as Stocks alongside Gold – they are supposed to be the ballast for each other. However, many investors hold both, while treating Gold as something akin to a risk asset, without the risk. However, this is not what textbooks state Gold should be like. But the returns this year beg to differ.