Why Is It Said By Everyone That Gold Would Be Reaching Above $2,000 By The End Of This Year?
To participate in the capital markets of the United States as stockbrokers, the investors or economists require some knowledge. Not only about the economy and how it works, but events and how these affect money circulation and investments.
They need to interpret economic indicators that are public knowledge and what implications these indicators reveal. They should also anticipate trends such as predicting what actions the Federal Reserve Bank could take to respond to certain events.
Only by analyzing these factors can you determine in which direction the financial markets will be heading. Therefore, the need to know all the factors involved, understand them and make an assessment that allows them to act accordingly.
Factors Currently Affecting Global Stock Markets
Economic analysts were already warning of a new collapse of the world economy and in the stock markets around the world. Even before the coronavirus made its appearance, these experts opined that different bubbles would burst. This is due to the new debt that exists today, which reaches almost 100 trillion dollars.
Some of these identified bubbles are located in the European, real estate market, and the American stock market. Although they have served to drive a global recovery in the past 12 years, when they erupt, the crisis will be worse than that of 2008.
Another second factor involved in the current mismatch of the stock markets is oil. Due to the health crisis that has arisen from the coronavirus pandemic, world demand for crude oil has decreased.
In addition to this, Saudi Arabia and Russia failed to reach an agreement to lower the supply of crude oil and thus regulate its price. Rather they decided to produce more; this decision led to the price of crude oil suffering its biggest decrease since 1991 when the Gulf War.
Investors anticipated it, given the decrease in demand due to the effect on the global economy of coronavirus. The third element that affects the stock markets is the coronavirus.
In this case, it is not an economic crisis but a public health crisis, which makes its effect felt in the performance of the stock, services, and goods markets. By affecting employment, the sense of economic meltdown has led all nations to unprecedented uncertainty.
Impact of COVID-19
Large losses have already been taking place in the great world stock exchanges due to the nervousness generated by their possible spread. Although humanity has not seen the consequences of the coronavirus, in the future we will have to face one of the greatest economic crises in history.
The impact of COVID-19 is unpredictable because its magnitude depends on how long it lasts and how extensive it is, and how many countries. By applying quarantine rules to try to contain it, it affects the development of economies in all sectors.
Being a worldwide affectation, the coronavirus affects the GDP of the economies of the entire planet. If the government reduces contagion and quarantine works, economies could recover. If not, and the crisis continues indefinitely, what is around the corner is a great recession by the end of the year.
Current situation of gold
The factors above have caused a liquidity crisis in all markets. Entrepreneurs and asset holders converted their values into cash to cover the losses they have suffered.
Many have focused on gold as a haven because of the interesting highs it is reaching. This was a strategy that finance experts had not recommended in the past.
Although the price of an ounce of gold dropped to $ 1,400 last March, it is now above $ 1,800. It will continue to increase as the days go by. Among the reasons for this significant increase is the fact that the owners paralyzed the companies and need to cover their losses with assets.
A currency devaluation is also expected to result if the situation worsens, which makes gold a safe value to deal with. Unlike other metals like copper, gold is not linked to an industrial activity to provide benefits. For this reason, gold attracts investors.
Gold does not offer dividends for shares or coupons in the form of bonds; its advantages come only from the increase in its price. In the financial markets, traditionally, gold is considered a safe-haven value when experiencing stressful times. Central banks currently have no restrictions regarding the purchase of gold. This is because the United States in 1971 stopped supporting its currency with gold.
Although the inflation that was expected after the financial crisis of 2008 did not come true. Today gold investors believe that it will. Some experts think that gold is the only asset capable of offering protection against eventual devaluation. And that it is an option to the enormous expense that the central banks are doing to face the coronavirus.
What drives gold?
Spending programs that involve billions of dollars for implementation. Last month, the United States announced several special responses to COVID-19 at the fiscal level that increased gold profits.
Two billion dollars consists of the stimulus program given the coronavirus that has been approved by the United States Congress. Additionally, the President is requesting an additional $350 billion to help small businesses.
It is also considering selling COVID-19 bonds at 20 and 30 years. On the other hand, the Federal Reserve also has other billion-dollar programs in mind.
However, what has helped to raise the price of gold is that the Central Bank announced an additional aid program. This is a program for those markets that have been most affected by the pandemic.
This response arises as a result of the increase, for the third consecutive week, in the applications for unemployment benefits in the United States. Some 18 million workplaces have been lost in three weeks, resulting in a 6.6 million increase in these grant applications.
Where to invest in search of security?
The aforementioned has produced great interest in gold, and investors have come out on the run from all sides. All investors want to get gold for protection.
An important opinion comes from the Egyptian billionaire Naguib Sawiris who declares that gold is a valuable asset. This is because the cost involved to create an ounce of it is less than that of the metal itself. His opinion is not the only one about it among the great magnates.
The interest of many in obtaining a good quantity of gold has been observed before this situation worsens. It can be affirmed that gold in these moments of convulsion is very stable because it has almost no relationship with other assets.
Additionally, it can be mentioned that their way of behaving in history has proven to be different. When central banks decide to inject liquidity to encourage economic growth, inflation can be generated. To this, investment professionals respond by purchasing gold to minimize its effects.
So the experts think that gold can generate tranquility in the face of the current instability of investments. A traditional remedy that can represent the solution to the current situation. As a result, gold, in the short term, reaches historical maximums such as $ 2,000.