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May 12, 2020

FBS, What's happening to Gold price amid Coronavirus?

Gold Price rises amid Coronavirus. What is happening and Why the price is rising?

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How is Gold price rising amid Coronavirus Pandemic?

Gold Price rises amid Coronavirus

Gold is experiencing a lot of highs and lows since the beginning of the coronavirus pandemic.

At the same time, no one can deny that it will always be one of the greatest safe-haven assets.

In the environment where uncertainty dominates the scene, gold would increase in price, especially if the trade war between the US and China intensifies once again.

According to UBS, gold prices could “break the highs” seen earlier this year, after declining in March along with other assets: “There is growing potential (for gold) to break $1,800 (per ounce)”.

Bank of America forecasts that gold will hit $3,000 within 18 months.

Demand for gold soared in the first quarter of 2020 as concerns about COVID-19 fueled safe-haven demand for the precious metal.

Total gold investment demand climbed by 80% year-on-year to a four-year high of 539.6 metric tons in the first quarter, the World Gold Council said.

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How Gold price rose?

Gold likes chaos, feeds on tensions and thrives in uncertainty and crises.

Therefore, the performance of the precious metal wouldn’t be any different during the coronavirus pandemic that has turned from a global health crisis into an economic one.

Bullion has proved its value as one of the most important safe-haven assets amid difficult times.

Gold tends to move in the opposite direction to the US dollar.

When gold rises, the greenback falls, and vice versa.

That explains why gold prices collapsed below $1 ,500 per ounce for in March when the coronavirus was declared a global pandemic.

Investors tended to sell gold to take profit from their gains in an attempt to cover losses known as a “margin call”.

Companies were forced to liquidate their gold holdings in exchange for the US dollar to provide cash and liquidity.

After this hard fall, gold recovered and prices jumped above $1,770 per ounce, its highest level in seven years.

Due to the limited supply of the precious metal because of the closing of mines and cutting production amid the spread of COVID-19, gold prices rose more.

Demand for gold soared in the first quarter of 2020 as concerns about COVID-19 fueled safe-haven demand for the precious metal.

Total gold investment demand climbed by 80% year-on-year to a four-year high of 539.6 metric tons in the first quarter, the World Gold Council said.

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Why is Gold considered Safe Haven?

Although gold is available in huge amounts globally enough to trade, it is limited and has a finite supply, so it is considered a rare and highly valuable metal.

As central banks moved to print more money to stimulate economies to fight the negative impacts of the virus, the halt of the economic activity and the declined investments, many fear that this will cause inflation to rise.

In this case, both other safe-haven assets and stocks will be affected and will lose their value, except for gold, because it holds its value for a long time.

That is why people see it as a refuge from these risks.

Every time investors flee to gold to protect themselves from their fears, bullion prices climb more and more.

Gold thrives on this fear, the more people are afraid, the more money traders and investors make. When markets calm down, gold declines.

For example, gold futures for June dropped after some countries started to reopen their economies after skipping the peak of the virus.

The European Central Bank’s decisions to contain the negative consequences of the pandemic also werent as aggressive as traders expected.

The more stable the situation gets, the weaker the demand for gold becomes.

With the increase of global tensions and uncertainty, the price of gold has become higher than it deserves, $600-$700 as the long-term average price is around per ounce.

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Will Gold price continue rising?

However, that doesn’t mean that the precious metal prices won’t rise to unprecedented levels, especially amid the exceptional circumstances that we currently experience, the return of the trade war between China and the US, and the failure to reach a vaccine or treatment for the “Covid-19” virus.

What we mean is that the entry points for trades today are very high because the yellow metal is a symbol of protection in times of instability.

Still, it may be an excellent opportunity to enter now if gold jumps to levels of $2000 an ounce or more later.

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