Gold may continue to rally amid weak global economic outlook

Gold prices have been extremely volatile along with global equity markets. The trend is uncertain in the short term, but there is little doubt that in the medium term, the trend will be positive.

The precious metal has been in demand, benefitting from safety-related demand since the last four-five months. The sharp selloff last month was because of retail and institutional investors forced to liquidate their long positions to raise cash to cover loss in equity and corporate bonds and meeting margin calls.

Gold bounced back from the lower levels. The speed and intensity of the recovery showed that once margin calls and forced liquidation was over, gold is the best option in such turmoil times.

The commodity saw some short jolt this week when Russia announced that its central bank is suspending gold purchase since April 1. Even though Russia is not buying, gold will attract plenty of demand from investors, who are seeking protection of their portfolio as fear from virus rises.

The US Fed is also providing much-needed stimulus to bolster gold prices. The central bank is buying treasury bonds and mortgage-backed securities. There is an 80 per cent correlation between the Fed's balance sheet and the price of gold.

Gold has historically performed well in falling interest rate scenario. With Covid-19 virus increasing, the Fed has slashed interest rates near to zero.


The precious metal will remain vulnerable to near-term volatility, and it is playing out the same theme it was doing during the 2008 financial crisis. After 20 per cent correction during 2008, next three years, gold makes all-time high around $1,900.

On the technical chart, gold is trading in Ichimoku cloud, but breakout came above $1,650, and we will only see rally coming to a halt below its support zone at $1,560.

We wouldn’t suggest buying gold with both hands, but any weakness should be used for making purchases for the long term. The historic connection between past financial crises and quantum easing efforts suggest gold prices may continue to rise.