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Gold sets records in euro and strives higher


18 February 2020

Apple has returned to the market fear of the coronavirus’ impact on the economy. The company said that the recovery of supply and sales might be delayed. Such reports from the most expensive US company, supported by a portion of cautious comments from RBA, have returned to the markets demand for save-heaven assets and was beneficial for gold. Earlier this morning, investors saw in RBA’s recent protocols hints for policy easing preparedness.

Gold prices rose above $1,585 per troy ounce, coming close to January high when prices reached 7-year peaks. The value of gold in the euro since this morning reached record levels above €1,465 mainly due to the single currency weakening.

So far this year, the growth of gold was enhanced by two different drivers. The most frequently mentioned one is the demand for gold as insurance during times of geopolitical instability and financial markets storms. For this reason, gold strengthened on the news of Iranian-US conflict and at the peak of coronavirus fears.

Another reason is the demand for gold as a means of preserving capital against inflation. Massive stimulus from various central banks eventually spurred up commodity prices around the world. Last week, macroeconomic reports across the globe clearly showed an increase in consumer price growth rates. This effect can continue to gain momentum as the People’s Bank of China and other Asian central banks strengthen the easing policy. At the same time, the Bank of Japan and the ECB repeatedly say they are ready to “strengthen monetary easing”. Now RBA has joined this company.

We see that waves of fear in the markets alternate with periods of hope that the central banks’ stimulus will work. Last week, a second factor dominated, pushing stock indices up around the world. At the same time, European and US markets were updating their historic highs.

But even with softening of fears gold was experiencing moderate correction kickbacks, maintaining the upward impulse formed in December. Moving upwards from one consolidation area to another, the gold price may grow up to levels around $1,700 (last observed in early 2013) or even jump to $1,800 (peak values of 2012) in the coming months.

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