The gold market has been demonstrating some significant bullish factors in recent months. Although this market is often the subject of speculation and even talk of manipulation, the gold market does stand for something and can serve a very important purpose. This includes hedging against inflation, a weaker dollar or giving investors something they can physically touch and get their hands on.
The environment for gold could not be better right now, and the yellow metal may continue to rise. Gold’s ascent could include a challenge of its previous all-time highs near $2000 per ounce in the weeks and months ahead, in fact, the market could even move way higher than that. Bank of America recently put its gold target at $3000 per ounce, and an increasing number of banks and brokerages could also adjust their targets higher if many current issues remain in place.
The gold market has three primary factors driving it right now:
- Ultra-low interest rates and unlimited QE
- Threat of inflation
- Uncertainty surrounding the global economy and COVID-19
As the Federal Reserve and other global central banks look to contain the effects of the global shutdown through low interest rates and QE, the trend towards easy money policies may continue for the foreseeable future. This may lead to a significant weakening of fiat currencies and could stoke rising inflationary pressures down the road. A weaker paper currency and rising inflation are both considered bullish for gold and other hard assets.
The uncertainty about the ongoing spread of COVID-19 and its economic effects could also set the stage for higher gold. This scenario is difficult, if not impossible, to quantify, and may lead to an ongoing, increased demand for alternative investments. Although the U.S. stock market has recovered a great deal from its declines from recent all-time highs, it has not recovered everything and could be setting up for a fresh wave lower that could take it to fresh lows beyond those seen in late March. Some analysts have even suggested a drop from current levels by 40 or 50 percent, and it could take years for the market to get back to pre-virus levels.
The effects of the virus have already been seen in the employment market, where millions of Americans have now lost their jobs. The effects of the virus may even be far worse than what can be seen currently, and could lead to a large amount of bankruptcies, business closures and other negative outcomes. Any way you slice the cake, it will take significant time, money and effort to overcome the negative economic effects of the virus, and markets may never be the same.
These factors may keep the yellow metal on the offensive, and a rise towards previous all-time highs could be seen sooner rather than later. In the meantime, any significant dips in price may be aggressively bought by long-term investors looking to add to their holdings.
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