For market participants who actively trade or invest in gold, the last few days had been historic. On Wednesday (July 08), gold futures, for the first time since 2011, settled above $1,800 per ounce. That was followed on Thursday (July 09) too, when physical or spot gold prices rallied past $1,800 per ounce.
Since the historical run-up to the all-time highs in 2,011, when gold neared the $2,000/oz mark, it had not traded above $1,800. The historical run in the middle of 2011 took gold pricing for a brief instant above $1,900 to a record high of approximately $1,920. However, that price point was unsustainable. In fact, on each of the two occasions during August and September 2011, gold traded above $1,900, but closed below that.
This gold rally that began in March 2020, when gold was trading for $1,450, is arguably due to the result of the actions of the Federal Reserve and the US Treasury. In response to the global COVID-19 pandemic, the Federal Reserve initiated quantitative easing for the first time since they had stopped their previous, QE3, in 2014.
The Federal Reserve has now added $3 trillion to their balance sheets with the purchases of mortgage-backed securities, US treasuries bonds and corporate bonds. The US Treasury has allocated an additional $3 trillion to fund the “Cares act”, an aid package passed by the House and Senate. While the markets most definitely have seen many ups and downs, these responses to the pandemic have put the markets in uncharted territory.
While many countries have seen a decline in the number of COVID-19 cases, it has spiked to over 3 million in the United States and accounts for 25 per cent of all global cases.
In this scenario, with businesses facing disruption, people losing jobs and pay cuts the equity markets in the back of liquidity have been rallying high, is this sustainable? Until a vaccine is in sight, could we see gold breaking through new highs even as it surpasses the all-time record high?
Gold has been on the move for the last few years, breaking all kinds of technical resistance levels in global markets. For those wondering whether it is too late to get in about the government gold-bond series in India, The Federal spoke to market expert Sudheesh Nambiath, the head of India Gold Policy Centre, IIM Ahmedabad, and Investor and Congress spokesperson Anand Srinivasan.
Listen to the podcasts here: