The coronavirus pandemic has undoubtedly injected euphoria for bullish gold investors, but will that sentiment remain as stocks appear to be rallying? Gold bulls got a hint of optimism as the latest Federal Reserve minutes from their March meeting shows that they don’t expect the economy to undergo a substantial recovery until 2021.
“The fundamental backdrop for the gold market remains bullish and the yellow metal has formed a solid initial support band between roughly $1,605 and $1,660 on the daily chart,” said Tyler Richey, co-editor at Sevens Report Research.
If the outlook seems to favor gold, what could be ahead that could possibly skew the precious metal towards the downside?
“Another sharp drop in inflation expectations as a result of the economic outlook materially deteriorating due to the negative impact of the global COVID-19 pandemic” Richey added. “Barring such a development, gold should continue higher albeit in continued volatile trading in the weeks and likely months ahead.”
Gold prices hit their highest intraday level since 2012, topping the $1,700 mark in Tuesday’s trading session, but then lost that momentum on Wednesday as equities in the major U.S. indexes kept building on the strength that the worst of the coronavirus may be over.
“In the last few days we have seen an acceleration of the gold price as it seems that investors are starting to realize that central banks will be forced to print a huge amount of money and put in place other ultra-expensive measures to fight the coronavirus-induced crisis,” said Carlo Alberto De Casa, chief analyst at ActivTrades, in a note.
James Hatzigiannis, chief market strategist at Ploutus Capital Advisors echoed that sentiment, emphasizing that a lot of uncertainty in the near term still lingers.
“(There is) still a lot of uncertainty around the coronavirus and if it has peaked yet in [the]U.S. and Europe,” Hatziglannis told MarketWatch. “Until we receive more clarity on the slowdown in this epidemic, we do not see the Fed making any changes to rates. Right now it seems they are on the more cautious side, as they should be, and that is a bullish fundamental case for gold.”
Where the ETF Opportunities Are
Investors looking to get gold exposure can look at funds like SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM). Precious metals like gold offer investors an alternative to diversify their holdings, and like other commodities, gold will march to the beat of its own drum compared to the broader market.
Traders looking for leverage can use funds like the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), VanEck Vectors Gold Miners (NYSEArca: GDX) and the Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG).
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