Gold rally may come back

Such credible banks as Bank of America and Citigroup made extremely bullish forecasts from $3 000 to $5 000. It’s hard to imagine right now, but let’s discuss why it may become true.

Even though gold has lost some of its gains, we must admit that this year has been the most incredible for gold. It has managed to reach record highs of $2 070 after the torrid rally. No wonder that the yellow metal surged so much amid the coronavirus outbreak. It’s natural that investors flow their capital into safe-haven assets during economic uncertainties as bonds have low or negative returns, and stock prices tend to be too volatile. Indeed, just a few months ago almost all the central banks warned that the coronavirus crisis pushed the global economy to levels unseen since World War II.

Besides, enormous financial injections from the US government flooded the market with dollars, which led to the depreciation of the USD. Moreover, the recent Fed’s statement to leave lower rates for longer weighed on the greenback as well. As a result, the dollar-denominated gold went upward. Nevertheless, now the USD is edging higher after the upbeat NFP report on Friday, which pushes gold to the downside, but some analysts warn that the post-NFP effect may soon fade. Notably, the long-term trend for USD is bearish, while gold is bullish. Actually, the yellow metal always sticks to the trend. Therefore, there are chances to see its’ rally again.

What will happen, if gold reaches $10 000? Analysts believe that the US dollar is likely to lose its value of the world’s dominant currency in this case. In addition, other currencies such as the Swiss Franc will follow the USD. However, governments won’t allow this nightmare to happen, they will definitely find the way out of it. They may control currency flows or even more confiscate gold bullions from people. It’s not a fiction, it’s a real fact: the US government did that in time of the Great Depression.

Technical tips

We discussed above what may happen in the long run, let’s focus on the short term right now. Gold has been stuck inside of the triangle since August 7 and has failed to break out of it so far. The move below $1 925 will prove the breakout and drive the price to the low of August 26 at $1 910. In the opposite scenario, if XAU/USD goes above the resistance of $1 950, it will clear the way towards the next resistance of $1 970. Try to catch the overall sentiment and follow big economic releases as they will add volatility to gold!

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Kseniya Medik