Gold rush in times of pandemic

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The current health emergency, the humanitarian crisis between Syria and Turkey, the collapse of the oil price and new cuts in interest rates in the US are making gold fly and continue to reach new heights. It's a classic. Gold is the safe haven asset par excellence when everyone runs for cover .

The stock exchanges, on Thursday 12 March, collapsed as had not happened since 2008, on Monday 9 March trading in gold , both physical and financial, touched 100 billion dollars, the highest volume of trade ever recorded .

Why does everyone put ingots in their pockets? " The liquidity that comes out of the equity is placed in safe ports, the first of which is gold ", explains Carlo Alberto De Casa, chief analyst at the London broker Activ Trades, in an interview with Republican that we want to bring you back.

Since the end of January, when the coronavirus problem started, it has risen by 7%. What pushes the ingot?

The rise of gold in recent days is linked to the moves of the Federal Reserve, which has cut rates - surprisingly - by half a percentage point, with operators already looking to the next cut, which could arrive on March 18 next. Clearly this is a direct consequence of fears related to the effects of the coronavirus. Gold is once again seen as a safe place in market storms. Usually part of the liquidity that comes out of the share is placed in safe-haven assets, including gold. History tends to repeat itself whenever there is a violent correction of the markets.

Are there other reasons, besides the epidemic, that explain the recent surge?

As mentioned, rate cuts and expectations for very low rates over a relatively long period of time are a support element for gold. The drop in the dollar further boosted.

At what price levels do you think it can go?

I read many enthusiastic predictions, who spoke of 2,000, who of even higher values. Personally, I am more cautious, I believe that gold could stabilize between 1,600 and 1,800 dollars an ounce. If the situation worsens, in the wake of the emotion we could also see new historical highs, but this is absolutely not obvious. Clearly much will depend on the duration of the coronavirus phenomenon and on how much this will affect companies' revenues, as well as on stock market trends.

 

And if instead the health situation normalized quickly, do you think there would be a heavy fallout in prices?

It is not a scenario to be excluded. Sell Gold could correct around 1,500 / 1,550 in this case. If the economy starts up again with the managers, it would not be convenient to keep the money steady on the yellow metal and we could see outflows towards the equity, with a consequent drop in gold. I do not expect striking collapses, because gold was already inserted in a positive trend before the coronavirus, but there would be room for a correction, which I would see as healthy in a context in which gold remains well set.

How does a saver buy gold today?

There are numerous ways to invest in gold. The first distinction must be made between physical and financial (or paper) products. Jewelry, coins, ingots and bars belong to physical gold. In the second case we find ETFs (ie Exchange traded funds), CFDs, an acronym for contracts for difference, as well as traditional derivatives such as futures, options and certificates.

 

Are there other precious metals or raw materials in general that have been particularly affected by the emergency of these days?

The main victim is oil. Since the beginning of the year, black gold has lost 25% of its value on expectations for lower consumption, which could generate excess supply. A similar scenario for diesel, where the loss is close to 28 percentage points since the beginning of 2020. The fall in agricultural raw materials should also be noted, just think that coffee, beef and soybean oil lose percentages between 12 and 15%. Instead, they kept rice and sugar better.

 

For any information, do not hesitate to contact us! Our consultants are always at your disposal by telephone on +44 1902 623253.

 

Read also:  Coronavirus and financial markets: long-term opportunities

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