Gold prices have started on a positive note today but they are somewhat immune to the on-going civil unrest in the US. However, the gold spot prices are highly reactive to the US economic growth. The fact is that the US economy is unlikely to grow at a stable pace if protests continue in America, and news like defunding of the Minneapolis police department keeps hitting the newswires.
Defundingthe Minneapolis police department could mean a change of the social systemwithin the country. This can have much larger implications not only for the USeconomy but also for the rest of the world.
On top of this, we see Trump’s approval rating falling in various polls. There are also threats from a hijacker to unveil Trump’s dirty laundry. All of these plant seeds of major turmoil that can translate into a fractured political system in the US which could push investors towards safe haven assets such as gold.
Here ismore detail on the current political turmoil in the US and how it is likely toimpact the gold price.
Protestsspreading: “Get your knees off our neck!”
Protestshave spread across the US and the world after the death of George Floyd, aBlack man living in Minneapolis. This has rattled the political landscape inAmerica. Phrases like “Get your knees off our neck” have seen a massiveincrease in volume on social media. Just to put things in perspective, thisparticular phrase has surged in Google Trends over 5,000% in recent days.
MinneapolisMayor refuses to defund Minneapolis Police
Minneapolis Mayor Jacob Frey has rejected the city council’s demand to dismantle the police department. The mayor’s decision does have some logic because dismantling police is likely to increase the level of violence in the city. This circumstance would further escalate the odds of higher volatility for riskier assets such as stocks.
Members of the Minneapolis City Council still want to take the drastic step of dismantling the police force due to the death of George Floyd. For them, this sends the right message and might reduce the turmoil in the US.
A major city going without a police force is a momentous change in the social structure that Americans are used to and it really shakes the foundation of the country. Investors remain unsure if this radical change is going to bring any good for the society as a whole.
Whatdoes defunding the police mean?
Defundingthe police is seen by many dissenters as the only solution for the kind of policebrutality caught on tape being used against George Floyd. The core concept issimple: stop giving money to the police and have Americans live without the lawofficers, and then redirect a sizable amount of that funding to marginalizedcommunities.
Thisradical idea first surfaced nearly six years ago during the protest against theFerguson, Missouri police after a similar police brutality incident back in2014. So far, Americans have lived with a relatively hefty police presence andif defunding the police becomes a reality, we could see mammoth volatility forthe gold spot price.
Trump’s presidency coincided with a period of enormous economic growth for the US, including, of course, the impressive stock market rally that took place before the coronavirus pandemic situation. The historic performance of US stocks kept the spotlight off the gold spot price. However, with US elections just around the corner, Trump’s approval rating has fallen off a cliff because of his mishandling of the coronavirus situation.
A recent poll conducted by the Public Religion Research Institute asserted that Trump’s popularity has fallen by 16 points to a low of 41% against the previous position of 55%.
Obviously, lowerratings jeopardize the chances of Trump returning to office and that means – fewer radical policies which mostlyinflated the stock market. If thingscontinue to heat up in this manner, it islikely to support the theory that gold prices tend to have tailwinds more intheir favor at times of higher risk.
What isthe price of gold today?
Gold pricesare trading higher today by $6 or 0.40%, and the gold spot price is up by over10% year-to-date. Since touching this year’s low of $1,451 on March 16th,the gold price is up 14.53%. The precious metal has hit a high of $1,765 on May5th, and bulls remain confident that this surging momentum is likelyto continue. Optimistic speculators believe that gold prices will touch $2,000sooner or later, and fundamentals do support this proposition.
Can GoldBulls Hold Hopes For $2,000?
Technically speaking, the bulls can only hold onto their hopes if the price stays above the 50-day price action because a break of this level represents weakness, but that still wouldn’t signal that the bull run is over.
For that to happen, the price needs to fall below the 200-day smooth moving average (SMA), a level that is well-known among smart money as it buys when the price crosses this moving average to the upside, and sells when the gold price crosses below this critical average. Currently, the price is trading below the 50-day SMA but above the 200-day SMA. This keeps the door open for the prices to touch $2,000, especially if the price moves back above the 50-day SMA.
How muchis gold worth?
How much is gold worth is one of the market’s most critical questions and the answer to this turns on how one sees this asset. Gold is known as a safe-haven asset and it tends increase in popularity with investors when geopolitical tensions, civil unrests, and protests break out.
Weak economic growth, higher unemployment rate, and anchored poverty level are the usual sparks for this fire. Given the chaos that we are experiencing in the US over these problems, the path of least resistance for gold prices seems to be skewed towards the upside.