July 23, 2020

Special Report: Gold Prices and A Record High

Special Report: Gold Prices and A Record High

Gold prices are extending their gains and currently trading at $1,875. Gold price is up nearly 23% year-to-date. The positive trend in the gold spot prices is chiefly due to the escalation in the geopolitical tensions and uncertainty over the second stimulus package. Investors aren’t afraid of the gold price reaching a record high, and there is clear evidence that backs this argument.

U.S. China Tensions Supports Gold Price 

The U.S.-China tensions escalated further yesterday when the U.S. ordered China to close its consulate in Houston. China has confirmed it is going to react with equal retaliatory action. This tit-for-tat action has made investors nervous, and some are hesitating to back the U.S. equity markets. This is despite the fact that the S&P 500 has erased its year-to-date losses.  

Uncertainty Over Second Stimulus Package 

Gold traders are also betting on the yellow metal price because there is uncertainty about the future of the U.S. unemployment benefits program. It will expire this month, which means that Americans will no longer get the extra $600 support in terms of jobless benefits. The debate is on in Washington about the second stimulus round that could include jobless benefits and stimulus checks for Americans. However, so far, it appears that politicians are playing politics, and there may not be any outcome by the end of this month. 

Stimulus Addiction 

Gold traders are considering this a risk-off opportunity, and they know that the current coronavirus stock market rally will crash in the absence of another stimulus support package. This has brought more interest in the gold prices. Even if the current stimulus package gets the green light from Washington, traders do know that it will only provide a tailwind for the U.S. equity markets for some time, and eventually, the U.S. equity markets will stall again. 

Basically, the U.S. economy and the U.S. equity markets have become addicted to the stimulus; it relies on the fiscal stimulus and monetary policy measures. As long as it gets these in some form, traders are ready to push the U.S. stock market higher. However, the skeptics are not happy, and they do not believe in this rally. This is why we keep seeing more interest and new money flow in gold ETFs. 

Not Afraid Of Record Gold Price 

Total known gold ETFs (Exchange Traded Funds) holdings show that traders are still pouring more money in gold ETFs, and there is no fear among them that the gold price is reaching its record high. 

Chart 1

Further evidence of traders supporting the gold price and not being afraid of the gold price getting near its record high is the below chart. The net non-commercial positions gold positions are still rising. Investors are still pouring money, and there is no sign of weakness here. 

Chart 2

The Bottom Line 

The bottom line is that gold prices are likely to continue their journey to the upside, and the gold price’s actual target is $2,000. Gold prices reaching its record high will only be a fancy headline, and evidence shows that traders and investors are not afraid of these record highs. They want to push the gold price high- for now.