Gold is one of the financial instruments that gives savers the most returns on global markets by 2020. In the face of stock indices that regain their losses under the leadership of stocks, major currencies gaining a strong value against the dollar, and declining developed country government bonds, gold, the most important member of the safe-haven group, has many triggers in basic terms to start its rising rally.
When the coronavirus was declared a pandemic by the World Health Organization (WHO), public authorities of developed and developing countries resorted to drastic measures to control the pandemic. In addition to the manufacturing industry, which declined sharply in line with the restricted import and export activities due to the global supply shock that came with the pandemic, the quarantine measures applied to limit the pandemic and the service sector, which was approaching the collapse, caused the economic activities to decrease to a minimum. Nevertheless, central banks of developed and developing countries had an expansionary monetary stance in order to minimize the strong downside risks in the economic outlook. Banks with reserve currencies such as the ECB, the Bank of England (BoE) and the Bank of Japan (BoJ), led by the Federal Reserve (Fed), which is in a position to guide global monetary policy, pave the way for unlimited monetary expansion.
In addition to bringing the policy rate closer to 0, the central banks of developed countries who want to provide the liquidity that the markets will need due to the coronavirus crisis at a low cost and in abundance, and high emissions and opening swap lines, developing country central banks generally pulled down interest rates until the last point allowed by market conditions. In this context, the loss of positive real returns (risk-free returns) advantage of developed and developing country currencies was the most important factor that led to a cumulative increase in demand for gold. In addition, predicting that the global gross domestic product (GDP) will shrink by close to 5 percent due to the devastating damage left behind by the pandemic, has been another trigger that enabled investors who want to protect themselves from risk to turn to Gold.
The tension that started on the US-China line over the Houston consulate, the strengthening of the Chinese-origin TikTok and WeChat applications on the grounds that the personal data of Americans threaten national security, will create a downside risk layer in the view of the global economy, which is already experiencing a major recession are factors that might increase the demand for Gold.
While it is not yet clear when the Covid-19 outbreak, which has infected more than 20 million people worldwide, will peak, it is worth noting that the coronavirus vaccine developed by the Gamaleya Institute in Russia will be registered on August 12th and mass vaccination work will begin in October, on the other hand, US President Donald Trump’s announcement that a vaccine may be available before the US presidential election on November 3rd, and the clinical trial of the potential Covid-19 vaccine in countries such as China, Germany and England will most probably relieve the pressure on the investors.
In addition, investors’ demand for gold is expected to continue with rising tensions between the world’s two largest economies in the setting, where developed and developing country currencies do not offer real interest rate advantages. But it is worth noting that the development of an effective vaccine or drug linked to the Covid-19 outbreak, as well as a step that could support the recovery of economic activity, is an element of downside risk on the precious metal.
The downside risks on commodities are technically considered to open the way for a profit realization and within the framework of which this can be expected in terms of healthier pricing, the potential for short-term pricing of the commodity, which may decline downwards to Fibonacci 50 percent and then 61.8 percent fan line in transactions below the 2000 level which is psychological resistance, our targets will be 2020 and 2050 resistances.
Resistance: 2020 – 2050 – 2075 – 2100 Support: 1960 – 1925 – 1900 – 1870
