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What Next For Gold Prices?

13 April 2020 By Eliman Dambell

Gold in financial markets has the reputation of being one of the more volatile instruments. Typically this market moves on average of around 900 pips a day which usually is extremely volatile in comparison to other well traded markets. However in the last month, Gold has moved at levels not seen since the 2008 crash and experienced significant levels of volatility in the process. 

As the somewhat “plan b” asset for most traders, Gold typically increases in value whenever stock markets are in sell mode and there is any form of market uncertainty. However, when markets are bullish and rising, prices in Gold fluctuate as investors see no need for a “plan b” and look to take stake in trading longer term stocks and indices

After recent declines in stocks, Gold climbed to as high as $1705 in no more than a few days, after consolidating within the $1520 – $1570 range for the last few months. Now trading within the $1600’s, many are looking at Gold to gauge how markets may continue to react as the current situations surrounding COVID-19 continues. So what could be next for Gold prices, will they continue to reach new highs, or will they revert back to the recent lows?

Analysing Gold Prices

In analysing Gold prices you need to look at the current market environment. The reason Gold has been so volatile is mainly due to the Coronavirus. As the virus began to spread in late February, many didn’t know what to expect as this was a new phenomenon. As a result, markets panicked and moved at rampant speeds. 

As seen on the above chart , 2020 has seen huge swings in the price of the safe haven instrument. The 21st February the price was trading at $1571, this was when the virus was still mainly based in the far east, after its reported inception in Wuhan. 2 weeks later on the  4th March, the price was up close to $140, and trading at a 8 year high of $1705. When you put things to perspective, it took Gold 5 months to move by that level in the first half of 2019.

What Next?

Taking the above into consideration, what is next? Many believe that as the true impact of the crisis begins to hit, only then will we see Gold prices continue to rise. In recent weeks the market has already begun to consolidate and create a price range of $1580 and $1660. Should news of the virus begin to worsen and governments around the globe fail to manage the crisis, and even need the use of the military to enforce lockdowns as we head into the summer months, then many may see this as a sign to flee into Gold investments.

On the other hand, and as we see currently, with China beginning to return to somewhat normality, and many highly impacted countries on the cusp of reach the “peak”, markets may believe the worst has come and gone, and this could lead Gold experiencing huge sell offs as investor confidence returns and the bull run we have witnessed in recent years continue. 

 

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