These include the US presidential election in November, the ongoing US-China trade war, and the UK’s departure from the European single market, with or without a deal.
The outcomes of each of these events will have a profound impact on the financial markets, which is why gold could surpass $2,000 an ounce by the close of the year.
These are convincing reasons that highlight why investors are buying more gold and holding onto this asset. However, some of these points can be countered by the bearish case for gold.
In short, those who are sceptical of gold’s future performance are also those who are confident that the global market will be able to quickly rebound and recuperate the initial losses incurred by the pandemic.
While this is wishful thinking, we should not dismiss this optimistic outlook based on what we are observing at the moment.
Knowing when to buy gold is difficult. That is why I always recommend that those interested use the volatility index, or Vix.
For those who are unfamiliar with this tool, it is a real-time market index that presents a 30-day forward looking volatility forecast; it does this by measuring market risk and potential investor sentiment.
When the Vix rises, we generally see a drop in the gold price. Conversely, if the Vix drops in price, we should see the price of gold rise.
Believing the hype
Some investors have a tendency to jump on the bandwagon. In other words, they believe the hype and act without doing the proper research.
It is difficult not to be bullish on gold’s future; however, any decision to buy or sell must be taken after appropriate consideration. Let us not forget there are other safe-haven assets that are posting impressive gains to little fanfare.
Silver comes to mind – since the beginning of May its price has risen by nearly 80 per cent.
There is no doubt in my mind that 2020 will be a historic year for gold.
For this reason, all investors need to keep an eye on its performance as it could indicate when we are seeing the beginning of a post-pandemic market recovery.
Giles Coghlan is chief currency analyst at HYCM
