2020-04-16 • Updated
Typically flourishing in the troublesome times, gold may seem to be among the last items worth investing in 2020. With the US-China trade deal on the way and global economic growth slowly picking up the pace, investors may lose interest in the precious metal, the traditional safe haven. Or will they not? Let’s have a look at how gold has been performing until now and investigate the factors for its price action in 2020.
The first look at the monthly chart of gold shows that things did not change much over the course of the last 20 years. Indeed, a powerful upsurge to a historical region of $1900 per ounce followed by a comparable downturn is dominating the entire picture.
However, when we connect the lows on both sides as indicated on the chart, we see that the inflated price growth in 2008-2011 was corrected by the following decline in 2012-2015. And now, the price is continuing exactly the same trend line it left when the global crisis stroke the world at the end of the previous decade.
Hence, if we extrapolate the observed long-term trend, it will be safe to assume that the gold price will keep rising in the observable future. Consequently, $1900 per ounce will be reached, sooner or later. Now, if it happens exactly sooner or later, we have to observe factors of local influence.
As we mentioned, gold is a safe-haven commodity, which enjoys a higher demand in times of global turmoil. Hence, this higher demand for the precious metal drives its price up when the economic outlooks become grim. That can be proved by one of the most notable failures of the global economic process – the US-China trade war.
On the daily chart below, we have the entire stretch of the US-China trade war. As a strong negative influence factor for the global economic environment during the last two years, it had its inflating impact on the price of gold. Namely, having started at $1300 at the beginning of the year, the price eventually rose to the area of $1500. Hence, the trade conflict was indeed a strong reason for the price of gold to gain 15% over the course of almost two years.
Therefore, strategically, economic turbulences do indeed force the gold price to grow. However, “strategically” is crucial here. From the trader’s point of view, tactical analysis is as important as it reveals where exactly to enter the market. And here, gold does not show a direct response to the global turmoil.
The green zones on the chart correspond to the fiercest opposition between the US and China in the course of the conflict. As we can see, they do not indicate a straightforward uptrend in the price. Rather, we see quite an inconsistent and somewhat lagging behind general correlation to how the trade war was developing. Still, the overall reaction is clearly visible: the worse the global economic situation, the better for gold price.
In this case, what are the predictions for 2020, in view of the pacified moods of the US and China, and an improved global outlook?
Many financial observers expect gold to become more expensive in 2020. While some predict a very moderate advance by $50 per ounce and others suggest a $100 rise to $1600, there are many who forecast a stronger uptrend. However, the median is an average-to-strong performance of the precious metal in the coming year. And there are factors for that.
First, although the whole world appreciates American and Chinese efforts to stop fighting at least on the New Year’s Eve, we still do not have that on paper. Obviously, it is incomparably better than outright mutual threats, but the strategic picture of the relationship between the two is neither optimistic nor documented.
Second, the 2020 presidential election in the US is a big question. Indeed, knowing the contradictive reputation of Donald Trump among the Americans, we can hardly be sure that he will have a guaranteed re-take of the White House next year. Hence, we can hardly be sure that the recent victories of the US-China relations will not be undone in November 2020.
Third, so far the US economy has been “in a good place”. Will that stay the same in 2020? We cannot guarantee that either, despite certain positive indicators being reported from time to time.
Moreover, there are notable de-dollarization trends voiced out more and more all over the world. While some countries directly suggest barter or gold-based exchange instead of USD, others keep increasing their gold reserves, implying a similar possibility. And that is taking place in a world which is no longer dominated by the US economy, and where the number of dedicated US allies is hardly increasing.
All of these factors work to tilt the global reserve asset choice in favor of gold and keep it in strong demand.
The new year starts in less than one week. And the economic and political ambience is unusually calm compared to the tensions we already got used to in recent years. But let us not be charmed by this silence. Although on a positive note, it may be foreshadowing another storm. In any case, gold is unlikely to lose in value in 2020. Hence, buying it now appears to be a healthy addition to the larger trader’s portfolio.
In most trading terminals, gold is marked as "XAU". To find the gold-to-USD pair in MetaTrader, you need to right-click anywhere in the "Market Watch" window, choose "Symbols" menu and go for "Metals" section - "XAUUSD" will be the one you need. And remember to keep yourself updated with the news of the Forex market.
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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