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Analysts: Geopolitics may take gold prices into new territory in June 2020

Saturday, July 11th 2020

There is no denying the fact that the world is in turmoil now and while a lot of that can be attributed to the current global pandemic, the economic world was already facing uncertain times and economic experts are predicting that the month of June will be unlike any other seen yet. Gold prices will see more gains in the coming weeks and it should be a few turbulent few weeks for precious metals.

While the coronavirus pandemic has complicated things, it has been suggested that the pre-existing trade issues between the US and China will be the driving force behind this turbulence.

Afshin Nabavi, senior vice president at precious metals trader MKS SA has said that “The gold market at the moment looks very bid because of all the tensions going on in geopolitics between China and the U.S. and also China and Hong Kong.

This will influence gold to the upside”. Gold ended up on a high of $1,757.70 an ounce last week and it is predicted that this price will go through further shifts as the issues between these to trade powers is beginning to come to the fore yet again.

Tensions have been simmering in the background for the last two months between these two superpowers and a re-escalation seems to be on the cards. Economists feel that the punitive tariffs already present in this trade war has complicated things but it will only make things worse if more punitive tariffs are imposed.

With all the ensuing changes to the supply chain, a knee-jerk reaction is expected in the short term. If the US further escalates this situation, it will send investors into a state of panic which will result in the cashing in of all assets which will hurt gold and other precious metals. 

A lot of variables being introduced into the system

While the existing trade issues and the havoc already created by the pandemic will have a say in the price of gold in June, the biggest influencer is going to be the rate at which infections will increase once economies around the world slowly start re-opening. This is something that is hard to predict which will further drive up the volatility.

Under normal circumstance, June is usually a quiet month for gold prices but this is possibly the most unusual June in the history of mankind. Experts are suggesting that the gold price will stay well above the $1,700 an ounce mark for the entirety of this month.

This will be because of the uncertain times projected not just for June but also for July and August which makes a safe haven like gold even more attractive for investors and this rise in demand will result in a rise in its price.

What about negative interest rates?

One remedy that has been suggested is to introduce negative interest rates but the Federal Reserve is very much against this at the moment.

Federal Reserve Chairman Jerome Powell has confirmed that they aren’t looking at negative interest rates as the appropriate tool for this situation. However, many financial experts believe that this stance will change soon. While the interest rates in the US are currently flat, these experts believe that America will follow the trend set by many European nations and adopt negative interest rates in the not too distant future.

In short, June will be quite volatile

A lot of the trends in the gold market is predicated by past data with current affairs playing its part in the minute details. However, as alluded to earlier, the current situation is unprecedented and no one can predict with any degree of certainty as to what can happen.

The initial knee-jerk reaction will set the volatile nature of the market into motion. However, what happens from there is difficult to predict. One the one hand, the economies around the world could show signs of recovery which will lead to some stability in gold prices.

On the other hand, the infection rate could also shoot up and worsen the already bad shape of most of the economies around the world which will drive the price of gold even further. The only certainty is that June will be a month of big changes.

New data will provide a fresh perspective

The next week will see the influx of a lot of new macro-data which will paint a clearer picture of the state of matters in the financial world. One such data relates to the nonfarm payrolls.

It is being predicted that the market will see a decline in jobs with numbers being as high as 8 million and an overall unemployment rate of 20%. This is in the short term will predicate the need for heavy disinflationary pressures which in turn will have an adverse effect on the price of gold.

A lot depends on how the market has been recovering and that will become clearer with the new data that includes the ISM manufacturing PMI from May. This will allow analysts to better understand how the market has been evolving under the truly unique conditions of the last few weeks. This week will also see key announcements from the Reserve Bank of Australia and the European Central Bank regarding their interest rates.

June is expected to be quite busy and while nothing is set in stone, expect the price of gold to go through variations on one level or another.