Last year was very successful for gold: the precious metal`s price increased by almost 20% and was (and still is) a very attractive asset for investors. Over six months, the demand for gold increased dramatically, which was facilitated by the growing concern of investors around the world due to a possible global recession and bubbles burst in stock markets, real estate markets and corporate debt.
Also, fundamental factors in early 2020 were more than favorable for gold.
January 2020 started with the price`s growth. The military conflict between the U.S. and Iran in early January, as well as concerns about the Chinese coronavirus, supported the price of the precious metal to 1610 dollars per troy ounce.
So, the price rose 9% in a few weeks, and most importantly, it broke through the historically important resistance level of 1550, opening the way for further growth. Despite such impressive growth and a strong technical signal, an appropriate fundamental background is needed for further uptrend development.
There are 3 main reasons:
- The first one is the geopolitical risks. In September, there was not enough sharp tension in the world to break through the resistance - $1550 per troy ounce. But after the assassination of Al-Quds General Commander Qasem Soleimani (as a result of an operation sanctioned by U.S. President Donald Trump), we can say that it all came together. The necessary geopolitical tension to continue the growth of gold has formed.
- The second reason is the expected weak growth in the real estate market. Based on the fact that real estate and gold are considered to be some kind of "physical assets", a decrease in demand in one asset usually causes additional demand in another. In our case real estate acts as an asset with insufficient demand, while gold, accordingly, attracts additional capital. Also, since the stock market distracts the main capital flows of investors, this is what causes the real estate market demand problem. But the real estate market will not be able to give 20-50% annual return as the U.S. stock market. Thus, low demand for real estate may become the second fundamental factor, causing further growth of precious metal.
- And the third reason is technical nature. It is not the fundamental factor, which may lead to a further increase in demand for gold, but no less important. Breaking through the resistance and strengthening the price above $1550 per troy ounce. This fact caused a boom in the commodity market, if before that gold quotations could not rise above this resistance, as this price was attractive for sales, now this level has become powerful support, i.e. in this place there is increased investor interest to buy the asset.
Based on the above, while the price of gold above 1550 we should not worry about the trend reversal. As for further prospects - we are talking about the mark $1800. Therefore, the rollback of gold in the area of 1550-1560 - this is a great opportunity to stock up on the precious asset!
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