Economic uncertainty creates more gold demand!

The New Year will prove to be quite bullish for precious metals: ABC

 

To summarise this week’s global market fundamentals, Gold traded up to within a dollar of the ‘distinct’ resistance level mentioned in last Friday’s report before fading slightly. 

The rally has been helped by the passage of the much-discussed stimulus bill by US Congress with US$900 billion going to Coronavirus relief and US$1.40 trillion for government funding through to September 2021. Precious metals moved higher since the announcement with Silver and Gold up 5% and 2% respectively. 

The Dollar Index (DXY) is making a small comeback this week. There is good support around the 88.25 level, and DXY longs have been gently accumulating in the previous week, perhaps willing to take the view that the recent drop is overdone. If the DXY recovery continues, this could be a head-wind for gold movement so stay tuned as this situation unfolds. 

The five-year forward Inflation expectations have moved to almost two per cent. Deflationary pressures are still present, and this will create an enormous challenge for central banks to move towards a period of sustained economic growth. 

Real yields have dropped further, helping the case for gold. The dramatic rise in the global supply of bonds with a negative yield, which last week hit an all-time high of $18 trillion dollars, is clearly playing a part in driving liquidity to gold and equities. Between March and December 2020 the volume of negative yield bonds shot up by a staggering $11 trillion.  

At a macro level, such market conditions bring no incentive to save and this creates a consumption debt-based economy.  With the holidays just around the corner we expect markets to calm down for the next 2 weeks until major liquidity resumes in early January. But this is never 100% ... we do expect the new year will prove to be quite bullish for precious metals as more economic uncertainty will create more demand.  

Whilst we wrap up the year, our online trading platform continues to stay open 24/7 - with our team working every day throughout the holiday period to service our investors. ABC Bullion will re-open on Monday January 11th 2021 for physical metal settlements.