Gold Futures broke $1,800 yesterday, reaching a high of $1,804 on the Comex in New York after a surge of new Coronavirus cases alongside inflationary fears.

 

 

Peter Thomas, a senior vice president at the broker Zaner group, states that there has been an “explosion” in demand for Gold, citing virus concerns, inflation, and general market excitement as the metal is up around 20% year to date.

Historically, Gold has been a gainer during periods of quantitative easing and inflation. Furthermore, it has been an excellent ballast for portfolios against market volatility due to the Coronavirus, outperforming bonds. This popularity has been evidently shown by the increase in inflows into Gold ETFs, with over $200 billion flowing into Gold ETF’s like GLD in the first half of 2020. This is in comparison to $326 Billion for the whole year in 2019.

Coronavirus surge in the US may provide upside for Gold

United States record over 48,000 new cases on the July 1st, forcing many states to pull back on their reopening plans. Texas has reduced its restaurant capacity guidelines from 75% to 50%, with New York disallowing indoor dining. Furthermore, Apple stated that they would temporarily re-close 30 stores due to the recent spikes in the Coronavirus.

However, it is not all good news for Gold.

The spot price fell short of breaching the key psychological $1,790 level, hitting $1,789.11 before seeing a sharp drop as equities rallied. This is on the back of the NASDAQ breaking its all-time high, reaching $10,321. Furthermore, FED minutes indicate that they will continue to support the economy, seeing a “highly accommodative” policy in the future. This is on the back of numerous FED announcements, bolstering its stance on helping the US economy at whatever the cost. The FED has stated that QE would be beneficial in the current cycle as its balance sheet surpasses $7 Trillion.

 

FEDs Balance SHeet

 

 

The stark contrast with what is happening on Main Street and Wall street shows how strong FED stimulus is in helping prop up financial markets, even with grim earnings outlooks. Gold may see some downwards pressure if vaccine tests for the Coronavirus continue to provide positive results, alongside further rallies in the equity markets.

Are you bullish on Gold?

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