Back in September, I assumed that gold price is unlikely to reach $ 2,000 per ounce in the near foreseeable future.
The fundamental weakness of the US dollar, extremely low-interest rates and the expectation of additional, comprehensive support measures before or after the presidential election should lead to a growth of gold interest. Why is it not happening?
The main reason is the lack of interest in it as an instrument for hedging financial risks, on the one hand, and on the other hand, because of its ratio to the dollar exchange rate. The gold price depends on how weak the dollar is.
Why does no one buy gold, despite the global economy’s problems and uncertainty about the prospects for its development against the backdrop of the coronavirus pandemic?
Gold does not generate interest income like bonds or company stocks (dividends). It makes no sense to buy it now because the world economy in general and developed countries’ economies are already at extremely low levels. In fact, the economy simply cannot fall further. Another fall will lead to total collapse with military conflicts and related problems. Investors believe that the company shares’ demand will accompany the world economy’s revival due to massive stimulus measures. Financial systems will flood with extremely “cheap” dollars, euros, yen, sterling, etc., uploaded by the world Central Banks – the Fed, the ECB and the like.
Markets are waiting for the start of mass production of COVID-19 vaccines, reasonably believing that they will allow the world economy to start actively growing. Once the vaccine is created, the pandemic situation will immediately stabilize and the world economy will start growing.
What to expect soon
I believe that gold has no prospects for price growth. It will only not reach the $ 2,000 level but will fall to the level that preceded the outbreak of the COVID-19 this year.