Gold To Continue Bullish Charge Through Uncertain Markets
- Gold prices have closed higher for six straight weeks and sustained economic uncertainties suggest this upward trend is likely to continue.
- Central bank stimulus across the globe confirms that these deep concerns are expected to persist - even at the highest levels.
- Prospects of low (or even negative) global interest rates are factors that should support the bullish argument for precious metals instruments with high liquidity.
Recent market trends have shown that precious metals continue trading higher as the aftermath of the first wave of the COVID-19 pandemic has been calculated by global economists in an attempt to understand the long-term economic effects of its presence. In light of these relatively new market trends, bullish investors trading the SPDR Gold Trust ETF (NYSEARCA: GLD) have encountered significant benefits in volatile economic environments that have produced rallies of 25.6% since March 16th, 2020. Gold markets have now closed higher for six straight weeks and sustained global uncertainties suggest this upward trend is likely to continue for the remainder of 2020.
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Source: Author via TradingView
What might be most striking about these recent market moves is the fact that the bearish presence has been almost entirely removed from the market. Over the last three months, the SPDR Gold Trust has been propelled by inflows of nearly $11.8 billion. Selling pressures that have been directed toward the ETF managed to reach their highest levels in the early parts of June. On a monthly basis, this activity followed the May trading period (which encountered even less selling pressure) and this makes it clear that GLD can continue to benefit as a critical safe haven instrument in the event that continued lockdown measures expose deeper weaknesses in the economy.
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Source: ETFdb
We must also consider trends that developed earlier in the year, as selling pressures were clearly more evident during the initial weeks of the COVID-19 media coverage. In the chart that is displayed below, we can see that fund outflows were most obvious near the middle and end of March. However, this bearish activity quickly reversed during the April and May trading periods and this is the bullish activity that has defined most of the recent price uptrend in GLD. Over the last six-month trading period, the SPDR Gold Trust has been the beneficiary of inflows equal to nearly $18.06 billion.
At this stage, it’s clear that most of these activities have been inspired by events at the macroeconomic level. Across the globe, central bank stimulus has reached excessive levels and it remains easy to see how these activities could generate destructive inflationary trends that leave fiat currencies trading under pressure for significant periods of time. As a result of these decisions, the asset purchases that have been pledged by global central banks as a response to the COVID-19 pandemic have already reached levels that would have been thought of as inconceivable just a short time ago:
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Source: Reuters, Goldman Sachs, J.P Morgan, IMF
Recent measures undertaken by the European Central Bank have added another $676 billion to its balance sheet and even the Reserve Bank of Australia has urged the government to continue with prior stimulus measures in order to calm uncertainties. Of course, this is notable because Australia has experienced far fewer casualties related to COVID-19 when compared to the world’s hardest-hit regions.
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Source: Reuters, Refinitiv
Central bank stimulus across the globe confirms that the market’s deep concerns are expected to persist - even at the highest levels of government. Additionally, the current prospect of low (or even negative) global interest rates creates another element that should support the bullish argument for precious metals instruments with high liquidity. In the chart displayed above, we can see that changes in interest rates have been widespread and even countries with relatively low COVID-19 infection rates have been forced to adapt monetary policy in ways that should continue to favor precious metals instruments as a preferred safe haven.
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Source: Author via TradingView
Since the end of March, price behavior in GLD has been well-supported near the mid-130s. From a technical perspective, this area can now be viewed as a zone of historical support but it can also be viewed in terms of its critical bounce from the Ichimoku Cloud structure. This is a strong bullish signal and it suggests that trend momentum remains firmly in positive territory for investors considering GLD long positions. Precious metals markets have already established a strong winning streak over the last few weeks but sustained economic uncertainties suggest these upward trends are likely to continue. Central bank stimulus indicates strong prospects for sustained reductions in global interest rates and this should support the bullish argument for precious metals instruments like the SPDR Gold Trust, which typically encounter high liquidity levels.