Gold Price
The price of gold (XAUUSD) is on every investor’s mind since the start of the COVID-19 financial crisis. The pandemic brought unprecedented recessionary conditions, as no other period in the world’s history brought simultaneous recessions in so many countries around the world.
The policymakers’ response did not disappoint – central banks eased monetary policies, while governments expanded fiscal stimulus. All these, in the long run, create inflation, and investors learned throughout time to protect against money losing its value.
Gold price is closely watched for precisely such reason. Investors allocate a few percentages in a portfolio to gold so as to hedge against inflation. However, gold also represents an investment. How else can one justify the parabolic rise of about $800 in the gold price in the last four-years only? And, at the same time, inflation in the developed world is nowhere to be seen.
As is the case with any commodity, the gold price depends on imbalances between supply and demand. On the demand, side, roughly 30% of its comes from the investment community.
Also called investment demand, it is the focus of many investors calibrating their portfolios in the search of the right percentage to allocate gold. A close look at what happened in the last two decades reveals a close relationship between the gold bullion price (LBM – London Bullion Market) and investment demand.
Source: Perspectives Pictet
It tells us that investment demand is a key driver of the gold price, indicating strong demand from the investment community. It makes sense, as increasing public debt and lower rates for an extended period of time are making gold attractive.
Gold price looks poised to check resistance above $2000 in an attempt to trip some stops higher. What’s interesting is that the price of gold broke higher well ahead of the start of the pandemic.
More precisely, it broke higher in June 2019, and trended ever since. It pulled a series of higher highs and higher lows, as it is the case in strong, bullish trends.
In other words, it rewarded early investors and such investors have the patience to stay in the trend for as long as trending conditions exist.
Investors looking to go on the long side should mind the higher highs and higher lows series. Any move below the previous higher low invalidates the bullish trend, while the $2000 and beyond remains valid as long as the market keeps pushing for new higher highs. Targeting $2300 with a stop at $1660 makes sense.
