Strategy
We had recommended a buy on Gold on 16 March 2020 with a price target $1700 in 6-9 months’ time. We are recommending a higher price target of $1900 in the next 6-9 months. Look to buy gold on its decline below $1700. Stop should be placed below $1625. We are expecting a rally to $1900 in 6-9 months’ time.
Technical View
Price moved above the Fibonacci 200% expansion point last week and this week, price has continued to move higher. Price has already moved past $1771 but it is still looking strong and likely to proceed higher. MACD is bullish and both its lines are rising sharply which is a hint of a strong bullish trend, with no signs yet of a reversal. Stochastic is currently in the overbought zone but given the strong trend, it is expected of Stochastic to behave in this way. 20EMA is also hinting of a strong bullish trend with its steep gradient. Price is also far away from the 20EMA, which is another sign of a strong bullish uptrend. It is looking likely price is in an extended 3rd wave and we are now expecting price to move to the Fibonacci 261.8% of the first wave, which comes in at $1907. This is also close to the all-time high at $1920.
Fundamental View
The fundamental for gold are supportive of a price rally.
- U.S. interest rate has been cut to almost zero. The US Federal Reserve brought interest rate to a target rate of 0.00% to 0.25% and in the latest FOMC meeting in June 2020, has stated that U.S. interest rate is likely to remain low at least till early 2022. With interest rate close to zero, this should reduce the holding and opportunity cost of Gold, which should encourage investors to hold Gold and spur the price of gold higher.
- The Federal Reserve has embarked on a quantitative easing; pumping money into the US market in an effort to keep the U.S. economy from shrinking as a result of the coronavirus induced economic recession. The Trump administration has also put up multiple economic packages to help its citizens and corporates from the coronavirus enforced economic hardship. All these fiscal and monetary policies are likely to weaken the US dollar. A weakened US dollar will lead to a higher price of Gold.
- The coronavirus may have slowed down in China, Europe and the U.S., but fear of a second wave of inflection has surfaced with higher daily inflection cases in many states in the U.S. and European nations experiencing an increasing number of cases after a slowdown earlier. This could favour Gold which is considered a safe haven asset.
- Geopolitical tensions are also likely to help Gold regains its glitters. Increased tensions in the Korean peninsula are likely to drive up demand for Gold as well as conflict in the Himalayas between China and India There is also the U.S.-China trade deal. If nothing happens price of gold is likely to stay stable but should some talks or any hints of escalating tensions over phase 1 of the trade deal, gold is likely to glitter.