Gold price hits record high – The commodity that weathered the Covid-19 storm

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Gold is the gift that keeps on giving in 2020. With its unbelievable performance in the past 8 months, gold trading is booming, and prices are skyrocketing. Here’s why you should invest in this safe-haven commodity today.

In August 2019, gold (XAU/USD) was barely scraping past $1500 an ounce, but the economic fallout of the pandemic and the ensuing risk-off mood led to increased demand in the yellow metal. As of August 6, gold price has breached the all-important $2,000 barrier and is continuing to grow. The question on every trader’s mind – is it a sprint or a marathon?

Let’s look at the gold price, what affects it in 2020 and how you can take advantage of the uptrend in this precious commodity. 

Gold market snapshot

The meteoric rise of gold reached all-time highs of $2,068 on August 6, following investors’ disillusionment in the U.S dollar.

Technical analysis suggests that its growth is due a correction but overall, the market remains bullish as the potential for dip-buying will continue. The precious metal has risen more than 35% in 2020 despite the coronavirus playing havoc with the global economy.

If the past 8 months are any indication, the bullish sentiment in gold could persist throughout August. In fact, the commodity has recorded new highs almost every month so far in 2020, greatly surpassing its previous all-time high of $1,821 in the beginning August 2011.

Gold-based ETFs recorded their eighth consecutive month of positive growth; 166 tonnes ($9.7bn) were recorded in July, equivalent to 4.1% of assets under management (AUM). Global AUM was recorded at $239bn.

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Top reasons why you should be trading in gold: 

  • 30% rise in year-to-date prices
  • More active than big-tech stocks
  • Stable growth despite the ongoing economic crisis
  • Bullish sentiment translates to buying opportunities
  • Could breach $3,000 in 2020

Weathering the Covid-19 storm

Low and negative interest rates, especially in Europe, have reduced the opportunity cost of owning the commodity, further supporting its rise.

Prices could also increase due to a drop in supply of gold ore from mining companies. Many industries are reeling from Covid-19-related shutdowns and as a result, factories were forced to shut down, further propelling the gold price.

Enthusiasm for the precious metal is being driven by investors who view it as a much “safer bet” than relying on the central banks to curb the economic damage of the coronavirus.

With the dollar’s collapse, gold is viewed as insurance against accelerating price increases across the globe.

Onwards and upwards

From 2016 to 2019, the performance of gold can be directly aligned with falling global long-term interest rates. In early 2020, once lockdowns and economic shutdowns had begun in earnest, gold’s rally can be attributed to coronavirus fears and the crippling of the US dollar, which suffered from heavy sell-off due to market uncertainty.

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Retail Gold Investment Principles

The World Gold Council, the organization governing the global gold industry, has launched its new Retail Gold Investment Principles (RGIPs), designed to regulate standards for “product providers across the global retail gold market and further encourage retail investors to place their trust in gold”. What this means for stakeholders is more engagement with the industry to define best practices.

David Tait, CEO World Gold Council said: “We have taken time over the past year to engage with a wide range of industry stakeholders representing different global regions and a diverse range of business models to understand how we can best support the retail gold investment industry. Our common objective is simple; make certain that investors, especially those considering gold for the first time, have absolute trust in the products they are offered and the providers with whom they chose to transact.”

“Through this industry engagement it was clear to us that the market would benefit from a globally aligned set of best practices to ensure an effective, efficient and trusted market overall, and we believe the Principles do just that.”

Top gold trading tips: 

  • Consider whether markets are at risk
  • Review the performance of the US Dollar and the gold price
  • Keep track of central bank gold reserves
  • Research the demand for gold jewellery and cosmetics
  • Research the current industrial demand for gold
  • Consider potential supply disruptions

The pandemic – the slow road to recovery 

It will be a long time before the global economy recovers and even then, things won’t be the same. The Coronavirus outbreak has affected all sectors of business with mass closures, rising unemployment and stock market dips.

There are some indications that Asia and Europe could recover but at a global level, a fast recovery is a forlorn hope. Instead, traders should prepare for a long road to recovery.

Central banks have cut interest rates while national governments, as well as the EU, have approved staggering rescue plans to support local economies. These initiatives have seen stock markets rally while gold continues to climb even higher.

The price of gold has more than doubled since 2008 and increased by just below 30% since the start of the Covid-19 pandemic earlier in March 2020. Investors, however, fear that economic stimulus plans to curb the pandemic-led downturn could see hyperinflation and the devaluing of other assets.

The jewellery conundrum 

While investors have embraced gold as a haven to hedge their trading portfolios, consumer demand for the precious metal remains weak.

Like many industries, the cosmetic and jewellery markets have suffered severely due to lockdowns hampering supply and crippling demand.

The annual Gold Demand Trends report shows demand for jewellery, one of the key gold-based markets, dropped by 46% in 2020 so far while bar and coin similarly dropped by 17%. Consumption of a product contributes to the health of its raw material production. And while, in the short term, gains can be made as the gold price climbs, low demand could affect the price direction.

How to take advantage of this opportunity? 

So, the gold price has breached the all-important $2,000 an ounce barrier but you’re unsure how to take advantage of this? CM Trading is offering an amazing package of unique tools and services to put the power of expert gold trading in your hands.

High uncertainty, low-interest rates, positive price momentum – 3 major reasons you should open an account and begin trading gold today.

Trade gold today.

Why trade commodities with CM Trading   

CM Trading provides clients with access to a wide range of tradable commodities with 50:1 leverage ratio, while gold and silver offer up to 100:1.

You can trade the following commodities with CM Trading:

  • Gold, silver, platinum, copper and palladium
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For further information and guidance, clients can get to bear with their Trading Specialist to receive daily updates on the foremost favourable assets of the day and discuss risk appetite and profit targets.

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