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Players in the US stock index are not the only ones celebrating the failure of gold.
It is one thing when the stock market, which has been booming for more than a decade, declines out of fear of the spread of coronavirus in the United States. Another, when we see one of the most popular hedging tools used by investors to protect capitals from crisis, falls in parallel with other markets, even though logic suggests that it should grow. It seems that the precious metal is being dumped as a normal risk asset.
After gold soared to its seven-year highs on Monday, experts from TD Securities warned that long positions on the precious metal had entered new uncharted positioning territory, which could cause a reversal.
"Many people bought gold and want to sell it. This holds back quotes from further rallies, despite the fact that sales are continuing on the stock markets," they said.
Some experts consider the current rollback of quotes to be a search for the necessary point of support. Having strengthened technically, the precious metal will be ready to achieve the goal that really matters for the remaining long positions in the market - $1,700.
The decline in quotes shocked many. During its rise, a large amount of quick money was invested in buying the precious metal. However, it was replaced by a subsequent fall.
We may be seeing local lows right now, but the environment undoubtedly remains favorable for gold, as stocks and bonds fall, and concerns about global growth remains.
Currently, the precious metal is trying to find support around $1,630.
The immediate obstacle to the quotes' growth is the resistance level of $1,660.
If gold manages to break through it, the precious metal may rise to $1,700, and target the highs of 2012.
Strategists from Goldman Sachs predict that gold may reach $1,800 in the next three months.
They gave three reasons for the increase:
1. Investment demand associated with the flight of investors from risky assets.
2. Accumulation of large amount of free savings.
3. The growing popularity of Bernie Sanders, who may become the candidate of the Democratic Party in the US presidential election.
"Recently, gold has shown better dynamics than traditional assets such as the franc or the yen. This suggests that all currencies are somehow vulnerable to the coronavirus, while gold is not," the experts said.
"We see the risks of a further decline in the stock market, which will keep demand for the precious metal high. As for household savings, they are at historically high levels in developed countries, which creates prerequisites for further capital inflows into gold ETFs," they added.
The bank believes that the increased attention in the US presidential election will also stimulate the demand for gold as a safe haven asset.
"Bernie Sanders proposes raising the taxes, which creates risks for the stock market, as well as sharply increase the government spending. The last time that this happened (apart from the recessions) was during the Reagan presidency in the 1980s, where back then, the price of gold soared, due to the fears of rising inflation. In addition, the tax on wealth proposed by B. Sanders may encourage wealthy Americans to buy physical gold and keep it in storage, where the government will find it difficult to reach," the analysts from Goldman Sachs said.
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