The increase in liquidity after the wave of money-pumping of governments in several countries, together with a low interest rate environment, will raise the price of gold.
Gold has continuously dropped in price since it reached the peak over the last 7 years at the beginning of March, as analysts consider the cause of this stems from investors liquidating gold importance to increase the amount of cash that they hold after crisis happened in other exchanges, with the American stock indexes shifting from a record-high to plummeting severely.
However, at the moment, Adrian Day, President and Managing Director of Adrian Day Asset Management, proposed that “gold has been overdue for a new price increase”. This statement has been approved by other Wall Street participants.
According to Adrian, most of the price developments will revolve around future events. The Covid-19 virus is still spreading, and governments and central banks are all proposing solutions to prevent the collapse of the economy.
According to Kitco’s survey, the majority of experts and investors are expecting the gold price to increase next week. On Wall Street, 69% of the experts participating in the survey said that the gold price would rise. Meanwhile, nobody forecasted that the price would drop and 31% remained neutral.
The result of the online survey on Wall Street is also similar to that of Kitco, with 589/1,163 votes, equivalent to 51% of the total, expecting the gold price to increase in the coming week; 365/1,163 votes, equivalent to 31%, expecting the gold price to drop; and the remaining 209 votes, equivalent to 18%, remaining neutral.
Colin Cieszynski, a market strategist at SIA Wealth Management stated that gold will continue to rise in price in the coming week. “Gold has been beaten by the recent USD rush, directly reducing the value of other currencies.
I doubt that this rush would be able to reach its peak in the coming weeks. As the USD reverts, the pressure on gold will partly be lifted. Jim Wyckoff, Kitco senior technical analyst, expects gold to trade at a higher price as buyers become more optimistic about signs of global stock and financial market recovery. Kevin Grady, President of Phoenix Futures and Options LLC, is also optimistic about the potential of gold. "I hope that the sell-off in gold will subside when the green color returns to the stock market.
Governments will pump a huge number of liquidities into the system to prevent credit disruption. The increase in liquidity, together with a low interest rate environment will raise the price of gold”, said Grady. Bob Harkerkorn, a senior commodities broker at RJO Futures, said, "The market looks stable after this liquidity crisis. I think the gold price will be higher next week." Richard Baker, an editor of Eureka Miner’s Report, advised "don't give up gold" even if the US dollar index had reached its highest level in more than three years, putting pressure on commodities like gold.
Cautiously, Ole Hansen, head of the commodity strategy at Saxo Bank, kept a neutral view of the gold price in the near future. He commented that while liquidity issues were starting to fade, gold was still struggling to attract buying power when volatility was still high. "We need to see lower volatility in gold to sustain the buying power," Hansen said. "Gold price is in a good position, but we don't know if there will be a second wave of sell-offs or not." Sharing the same opinion, John Weyer, co-director of commercial risk insurance Walsh Trading, predicted a largely flat market. "The price of gold is going up, but there have been cases in which the gold price rose to 50$ as well as cases in which it plunged to 40$."
On March 20, experts at Bank of America Securities predicted the average gold price of the year at US $ 1,619 / ounce, slightly lower than the previous average forecast of US $ 1,625 / ounce. These comments were made when the gold market tried to push above $ 1,500 / ounce.
April forward gold price was last traded at 1,496.80 USD / ounce. Bank of America economists noted that the reduction in their gold price forecast reflected the current situation as Covid-19 spread continued to weigh on the global economy.
A global recession may occur later this year, so it may take a long time for normal economic activity to resume. Although Bank of America commodity analysts see the gold price likely to be lower in the near future, they are optimistic that a price increase will eventually return to the gold market.
"At the moment, there's a bit of light at the end of the tunnel. Governments around the world are constantly launching remarkable financial and monetary bailouts. We think that gold will increase in price as loosening policies can raise concerns about the credibility of central banks and reinforce concerns about the sustainability of global economic management.