Source: IG Charts
GOLD FUNDAMENTAL OUTLOOK: BULLISH
- Gold price[1] may rise as global virus uncertainty boosts demand for safety
- US Dollar[2] weakness amid accommodative central bank policy could provide support
- Downside risk lies with weaker demand from China and India, as consumers may hold back spending
Gold Price Macro Outlook:
Gold prices have recently broken out above a key level at US$ 1,750 and edged higher. Global growth uncertainties resulting from the coronavirus and concerns over the economic recovery is inhibiting risk appetite and boosting demand for safety. As the likelihood of a pause in opening-up rises alongside Covid-19 cases around the globe, investors may look at precious metals as a defensive choice compared to stocks and bonds. The recent rally in gold prices and selloff in the Wall Street[3] is reflecting a swing down of risk sentiment.
Gold price has exhibited correlations with mining companies (positive), central bank money supply (positive), underlying demand (positive), inflation (negative), the US Dollar Index (negative) and the broad stock market (negative). A summary of the observed correlation is summarized in the table below. Surging money supply from the Fed and other central banks around the world suggests more liquidity are injected into the financial system, and thus would may buoy gold prices. A softening US Dollar in recent weeks has further propelled commodity prices, including crude oil[4] and precious metals.
Source: Bloomberg, DailyFX
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Gold Demand Outlook:
Physical demand for gold, however, is a bit tricky. A slowdown in the global economy as a result of the Covid-19 pandemic may quench investors’ demand for jewelry, watches and investment in the physical gold. In Asia, the slowdown of China’s economy, which remains world’s largest
