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Commodity Trade Mantra: Gold Prices Need a Healthy Correction to Regain Momentum

Commodity Trade Mantra: Gold Prices Need a Healthy Correction to Regain Momentum

By: Christine von Liederbach
September 13, 2021
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Article By: Commodity Trade Mantra

Gold Prices Need a Healthy Correction to Regain Momentum

We expect the rally in gold prices to resume after correction. Although there are signs that the coronavirus pandemic is stabilizing, the recovery path of global economy remains thorny and gradual. Central banks around the world will have to maintain expansionary monetary policy, pressing interest rates to zero, if not negative. Meanwhile, renewed tensions between the US and China are adding uncertainty to global growth, making gold’s safe haven status more attractive.

Gold is famous for its safe haven status. Contributing to this role are the yellow metal’s historical role as currency, its negative or zero correlation with traditional assets, and the ability to hedge against both inflation and deflation, maintaining the value holders’ wealth.  There is no doubt that gold price has increased sharply over the past few months, as the coronavirus pandemic has hit the global economy, raising the uncertainty of the recovery path and causing central banks worldwide to inject massive liquidity to the markets.

Global Low Yield Environment

The exceptionally low yield environment bodes well for gold prices. In March, major central banks acted aggressively by cutting the policy rates to record low levels. They also resumed, or embarked, QE, pledging the buy assets in order to bring market rates to also most 0%. This supported gold, sending the yellow metal to a record high of US$1775/oz on April 14. After a month’s correction, gold’s momentum return. Despite reluctance to adopt negative rates, Fed chair Jerome Powell’s dovish comments before the Congress on May 18 lifted gold to US$1771/oz, just a few points shy of the record high, again. Powell indicated that the recovery may not begin until the end of 2021 and pledged to use a “full range of tools to support the economy”.

To read this article and charts in Commodity Trade Mantra in its entirety, click here.

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Although the information in this commentary has been obtained from sources believed to be reliable, The Gold IRA Company does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. The Gold IRA Company will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.

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