Today, the gold market has a unique situation. The price of the yellow metal has broken all imaginable records and continues to grow. How long will the uptrend last, and how can I make money on gold during this time?
Only in the last seven days of July, a Troy ounce of gold rose in price by more than $70, reaching a historical high and rushing to the psychological threshold of $2000. But it is not so much the record numbers that are striking, as the anomalous dynamics of the gold market itself. Only in July 2020, the yellow metal rose in price by 10% or $200. Over a four-year period, this was the most productive month. And the time from January to July was the best in a decade.
Gold alternative to the dollar
Such a sharp rise in gold is due to the unique situation that has developed on the world market by the summer. The us dollar is rapidly losing its position relative to other reserve currencies of the world. The DXY index, which clearly illustrates the dollar exchange rate in comparison with six other leading monetary units (the canadian dollar, the Euro, the Swedish Krona, the yen, the Swiss franc and the British pound), fell below 93 points by August. The last time such a decline was observed two years ago. In total, since the beginning of spring, American money has "lost weight" by 10%. The projections indicate that by the fall of the US dollar will lose as much again.
The devaluation of the dollar is caused by the deliberate policy of the us Federal Reserve, which seeks to quickly transfer the country's economy to the recovery phase. At the end of June, the Federal reserve's open markets Department decided to keep the key rate around 0%, explaining that the economic recovery may last for a long period of time.
The GDP of the United States in the period from April to June was recorded at record lows. In just a year, it has fallen by more than 30%. This is largely due to the Us-Chinese confrontation over the change in the status of Hong Kong. China began to transfer its financial reserves from the market of American "treasuries" to more reliable anti-crisis instruments, such as gold. The Chinese example was followed by many of the largest investment funds in Western countries.
The turmoil in the gold market was further intensified when the reports of gold miners for the past quarter were published. It proved what, so, was clear even before the beginning of the summer-the volume of gold produced has decreased significantly. The coronavirus quarantine forced mining companies to reduce production by about 15%. Even such a global giant as Newmont Goldcorp has reduced the volume of precious metal produced by 20%. In General, the gold market returned to the level of annual production for the period from 2014 to 2015. The supply of extracted precious metal in the first half of the year did not exceed 1,600 tons.
This situation in the market has led to an increase in the projected value of gold for the coming year. Back in late June, forecasts did not rise above the $1,800 per ounce mark. Now financial experts from Goldman Sachs are already predicting the level of $2500 for gold. Another major participant in the gold market, Bank of America, sets the bar even higher and promises an increase in the price to $3000, that is, by 50% from the initial levels. Even the most modest predictions today do not fall below $2,300 per ounce.
It's time to fix the profit
Russia has all the chances to earn good money on gold today. It is one of the three leaders in the production of this precious metal. Taking into account the termination of the Central Bank's purchases of metal from domestic gold miners in April, most of them were forced to refocus on export supplies, which from April to June have already reached 100 tons, exceeding the entire volume of last year.
The actions of the Central Bank of Russia regarding gold should play into the hands of domestic gold miners and support the weakening national currency. Given the high demand on the world market, Russian producers can easily export the volumes of precious metal that used to go to the" bins " of their homeland. The decline in production associated with coronavirus restrictions will be offset by a record increase in the cost of the yellow metal.
The advantage of domestic gold miners is the low cost of extracting one gold ounce, which is from $600 to $700. In the US and Canada, this indicator is at the level of $1000.
However, the period of record-breaking expensive gold will not last long. In about six months, the weakening of the us dollar will be replaced by its growth. The world economy will move to the beginning of a new cycle and begin to recover. At the same time, the sphere of interest of investors will return from protective anti-crisis assets to the market of ordinary securities. The rise in the value of the precious metal in the next few months will be replaced by an inevitable correction. While there is a chance, and the price is growing, you can make money on gold before the trend changes. Against the backdrop of a seasonal decrease in production volumes, a new surge in demand is expected in the winter. But in the first month of spring, the long-term drawdown of the gold market for a whole decade may begin. By this time, it is better to have time to get out of gold assets.
