The Covid-19 outbreak has plunged the world into a catastrophic phase. People can’t get out of their homes, offices are shut, countries are under lockdown protocols, and what not? It’s a never seen before scenario raging all over the globe. During this time, as you can understand, the economy of the entire world is not quite on the brighter side of things. Oil and gas industry has already crippled, the aviation sector is having a really hard time keeping up with expenses and various other small to medium-sized companies are just shutting down because of the recession. What is happening with the gold shares?
Once the coronavirus became a global pandemic, a lot of investors and common people have turned their investments towards gold. They consider it to be the safest bet right now. The global equity market has plunged deep down as well. So, instead of making assets in stocks and bonds, people are finding it more convincing to invest in gold. Gold prices have managed to remain quite steady since the last week of March. And till date, it performed well off. Making it a more attractive prospect for many people.
What is happening exactly with the gold shares?
For decades, gold has been the sweetheart investment option for millions of people around the world. As gold prices have risen steadily over time, people found it a much safer option to consider and go back to in times of crises. It guaranteed returns and lesser risk when compared to stock market equities or real estate assets. In countries like India, the price of gold remained on track for more than 2 weeks even after the global pandemic hit the country.
The major indices around the world have seen new lows of the decade and there is considerable panic across the industry. The uncertainty of return from equities, bonds and mutual funds, have attracted a lot of people towards gold. Hence, the gold industry benefitted quite a bit.
Even countries like the USA, are finding it exhausting to cope with the ongoing pandemic. A massive $3.8 trillion relief fund has been set up to review and revive the economy back. But there’s a catch as well. The gold prices may have managed to keep steady for a few weeks till now, experts believe chances of downfall is there.
Already, a spike downtrend of INR 2000 was seen in the prices of gold, despite its good track record. Hence, the market is now very unstable. Also, demand in the world’s second-biggest gold consumer has already tumbled, slammed by record-high domestic prices and as the economy heads for the slowest pace of growth in 11 years”. Since most of the gold and jewellery shops had to be closed due to nationwide lockdown, the market is affected.
Another thing to worry about is the number of investments that the industry can expect. Since the lockdown protocols were initiated, people have lost a lot of money in almost every sector. That is why, consumers and investors are not looking forward to investing a huge amount of money on any kind of option, be it gold or stocks. So, long-term relief is not present.
What can influence gold prices?
Analysts and market experts have identified 3 main factors that can influence the price of gold in the coming months. As we head to the 2nd week of May, Covid-19 situations around the world are not at all close to satisfactory. The overall sentiment for the gold is quite bullish, but it can change. Take a look at the factors:
Increase in volatility is one of the most important reason because of which prices will be affected big time. Too much of volatility is going to only work against the price of gold. It has already happened in the mid-March session. Heightened volatility in the market can lead to major disposition in the gold prices in May. If you look at the previous charts, you will always observe that gold never performed well when there was too much volatility present.
Kieran Clancy, Capital Economics assistant, said that “We think the dollar will remain quite strong, but that won’t necessarily rule out further rises in the gold price in Q2”. The demand for haven will offset any kind of drag that is introduced by the US dollar.
The U.S. dollar – the US dollar was seen gaining some strength being a haven currency. It can be the main reason for the influence of gold prices. Bart Melek, head of TD Securities said “typically, whenever the U.S. dollar index moves higher, gold tends to get a little bit of a headwind. The U.S. dollar is up quite considerably and that has been one of the key determents of where things are going”. The higher the index for the currency goes, the more difficult it will be for gold to be stable.
So, if you see the global charts, you can easily understand that countries have been impacted differently than others. Gold, despite being a favourite investment option, may find it difficult to find stability in the coming days. If you want to know more about what is happening with the oil industry, read our new article here.