The price of gold has slipped below the $1,900 per ounce benchmark, reaching a near three-week low of $1,872.19 on Wednesday, while gold futures also slid 2.4% to $1,900. It marks the largest one-day fall since 2013.
Just last week, gold prices soared to a record high of $2,075 after sustaining one of its longest price rallies in history. The rally began back in 2018 and was expected to peak sometime in 2020, but the economic impact of the coronavirus pandemic sent investors clambering for gold, as it historically tends to perform well during periods of market turbulence.
Despite the record fall, the price of gold is still up by nearly 30% this year. Its lowest level in 2020 was just $1,484 on 20 March, as the burgeoning fears surrounding coronavirus struck fear into equities worldwide.
Hopes that the US government might approve another trillion dollar stimulus bill (after the $2.3tn package released in April) to boost the economy sustained investors’ interest in gold over the past few weeks, but with the dollar making a leaping comeback, attention has turned back towards typically more risky assets – such as stocks – and away from the coveted metal.
Governments around the world have pumped unprecedented levels of state funds into their economies, as the pandemic paralysed the retail and travel industries, and sent global markets tumbling. The tsunami of additional cash flow helped to lift gold to its highest price in more than 7 years.
But, IG Markets analyst Kyle Rodda told Business Insider, gold’s rally was unlikely to be sustainable: “It looks like some of the euphoria is coming out of the gold market. A lot hinges on US [Treasury bond] yields and the factors driving them at the moment. Also, the dollar’s strength will be something very important to watch over the next few days and weeks”.
With this in mind, gold may well rally once again. The simmering geopolitical tensions between the US, UK and China look set to continue – especially as the US presidential election fast approaches, with Donald Trump and Joe Biden expected to go head-to-head over a proposed solution to both the situation in Hong Kong and Huawei’s controversial 5G project.
And, the coronavirus pandemic has by no means just gone away. With cases beginning to rise once again across the UK, the US and several European countries, investors might be forced to run back to the relative safety of precious metals if markets take a turn for the worse. So, the record fall might not be something to despair about just yet.
To this end, Naeem Aslam wrote for Forbes today: “Despite the current sell-off in the gold price, the future remains positive for the gold price. There is too much geopolitical uncertainty, and global economic growth is likely to remain fragile”.