Gold prices up 16% in 2020

Mon, Jun 08, 2020

Jerome Lee


THE Chinese idiom yi bo wei ping, yi bo you qi (translated as: before the current problem has been resolved, a new one rears its head) aptly describes my view of 2020 thus far.

The first half of the year was mired in the grips of a global pandemic of a scale not seen since the Spanish Flu pandemic of 1918. The effects of this viral outbreak have impacted almost every aspect of modern living globally. From the halt of air travel as countries went through systemic lockdowns in a bid to control the spread of the Covid-19 virus to the new normal of wearing face masks and the liberal application of hand sanitisers.

As the second half of the year begins, most countries have reported a slowdown in the spread of the novel coronavirus as the results from the measures have started to show. There is a palpable air of expectation that perhaps the worst is starting to come to an end.

However, this might be very far from the truth. On the pandemic, scientists have predicted that it may take up to two years before we see the last of Covid-19. Beyond this is the very real economic impact that has been sustained by businesses small and large due to the viral outbreak.

A quick look at the unemployment rates in the US can be used as a benchmark of the impact. In April 2020, US unemployment rates jumped to 14.7 per cent from 4.4 per cent in the previous months. The market expects the unemployment numbers for May 2020 to hit near 20 per cent. The cause of such a large number of unemployed simply means that businesses are scaling down on jobs to keep afloat or have gone belly-up as they were unable to survive this period.

As a result, my personal view is that it is unlikely we will see a quick V-shaped recovery following this period of downturn.

Exacerbating this is the renewed US-China tension which could have a great impact on world economy - as we have seen in 2019. The impact this time could be more damaging, especially to a global economy still wounded by the pandemic.

Thus, with the copious amounts of uncertainty all around, it is without surprise to see the price of gold soar. This most traditional of safe-haven instruments have seen retailers and investors flock to it in droves, pushing the price of gold to highs last seen eight years ago in 2012. In 2020, gold prices have risen 16 per cent from around US$1,520 per ounce of gold from the start of 2020 to the year high of US$1,765 per ounce.

On the daily charts, we can see that gold prices are retracing in a gradual down equidistant channel after reaching the year high of US$1,765 per ounce. We see technical support levels at US$1,700 and US$1,680 with immediate resistance levels around US$1,730 and US$1,747 created by previous highs. From a technical analysis standpoint, as long as the price of gold can remain above US$1,700, it is more likely to see more up side for the precious metal. If the momentum of investors buying into gold continues to be strong, there is a possibility of gold testing US$1,800 and even US$1,900 this year.

The writer is senior strategist at Phillip Futures

Disclaimer: Chartpoint is provided by Phillip Securities Research for information only, and should not be construed as investment advice