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GOLD HIGHS, SEVEN YEARS AND COUNTING.

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Gold hit the highest level in USD terms in over 7 years last week at $1,747.36, and more to go...

I will go into more detail about below in our upcoming webinar Friday 24 April 8 PM UK time. Click here to register.

The IMF (International Monetary Fund) is looking for a global contraction of 3% this year as opposed to growth of the forecasted 3.3% due the global lockdown under the Covid-19 response. This is suggested to be the worst setback in the global economy since the 1930s depression. In such times Gold remains a haven to have in uncertain times of economic hardship and financial confidence being under pressure.

As a consequence Gold last week made fresh 7 year highs in US Dollar terms at $1,747, (+7.0% in 15 days), and poised to test a major resistance hurdle between $1,796-$1,805 from 2011-12 and proved a very tough region to break, (see weekly chart below). So for Gold bulls out there clearing this region sets up the green light to all time highs near $1,921 thereafter and beyond. In fact I have highlighted some target levels once $1,805 is taken out namely $1,872, then fresh highs to $1,947.

Remember Gold can also be a currency play and in Sterling terms on the 24th March 2020 a new all time high in (GBP) terms was reached at £1,449.43 an ounce, and last week scouted above £1,400 once again. We await fresh highs to surface again soon. Note it was +11% in Indian Rupee Terms in April.

What is really interesting about the recent bounce in Gold is that this has happened when equity markets have rebounded 30% in recent weeks, namely the S&P500 etc, which one might think makes Gold less attractive in a “risk on tone”, but this has not been the case.

Rising demand in Gold backed ETFs (Exchange Traded Funds) added 298 tonnes, or net inflows of $23 billion in the first quarter of 2020, the highest quarterly amount ever in absolute US Dollar terms and the largest tonnage addition since 2016.

Gold ETF – weekly chart with 39 week moving average (now over 94 million ounces)

In my view I actually think there will be a trend in time for Governments to issue Sovereign Gold Bonds or (SGBs) following the India example.

The RBI (Reserve Bank of India) is issuing 6 tranches of SGBs starting from April 20th 2020. The Bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram and the tenor of the SGB will be eight years with exit option after fifth year to be exercised on the interest payment dates.

The minimum permissible investment will be 1 gram of gold and the maximum limit of subscription will be 4kg. The investors will be compensated at a fixed rate of 2.5% per annum payable semi-annually on the nominal value of the SGB. The first tranche will open on April 20-24. The bonds will be issued on April 28.

The sovereign gold bond scheme was launched in November 2015 with an objective to reduce the demand for physical gold and shift a part of the domestic savings -- used for the purchase of gold -- into financial savings, I think if this goes well in India other governments will take a keen interest on this, but cynically I think people would rather still own Gold, it’s easier, more transparent and liquid.

Note Canadian and South American Gold mines could be back on line in weeks as miners have been given “essential service” status in some countries namely focus is on Newmont the world’s biggest gold miner, but this is weeks away and there is still problems with transport and miner logistics overall.

There is a lot more I could say on Gold, but I will leave that to our webinar on Friday 24th April, please catch up with the team then.


 

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