Matthew Hinman, senior analyst at International Investment firm, EXANTE says:
Investor fears around the expansion of securities buyback programmes executed by Central Banks and the growing tension between the US and China has seen the price on gold futures fall from an 8-year high at the middle of last week to around $1770.
Additionally, rapid sell-out at the US markets yesterday helped strengthen the USD, which in turn played against the gold quotes.
This is because excessive market volatility like we’re experiencing now is not the best environment for gold. Since March it has been falling with the markets on a wave of margin-calls.
Nevertheless, since the beginning of the year gold’s price has risen by 16%. Additionally, the gold price soared during the last crisis – rising threefold from October 2008 to August 2011 to above $1900. History could repeat itself!
On one hand, investors fear the next wave of crisis which is predicted in the second half of 2020, and could be followed by a new, giant injection of liquidity. When the inflation in the US rises above 2% there will be an inflow into gold.On the other hand, there is still hope for a V-shaped economic growth scenario. This situation could lead to gold having to balance the demand for protective and anti-inflation properties and aspirations of active economic growth. The disappointment of bond and stock investors also adds to the popularity of the asset.
It is worth noting that most retail traders see a problem in high debt burden in the developed economies and are scared that the world will get flooded with cheap money, which would subsequently lead to the devaluation of their positions.