Gold is fighting for the highest month-end close ever

Since the beginning of the year, the price of gold expressed in US dollars has increased by more than 7,6 percent, at one point exceeding the level of USD 2000 per ounce. This was the highest level since March, when gold prices also rose amid the outbreak of war. It should be noted, however, that 7,6% of increases of up to 7%. is a move that emerged in March in connection with the banking crisis.

1974 USD is the highest closing price for the month that fell in July 2020. This morning an ounce is valued at 1963 USD, so it can be assumed that the bulls in the gold market may fight for the highest closing in history. What, apart from uncertainty about the banking system, can currently support gold prices? It seems that exactly the opposite of what did not favor them in the first two months of this year.

As reported World Gold Council physical-backed global gold ETFs previously witnessed another month of outflows where they lost $1,7 billion in February. A stronger dollar and rising yields led to 5 percent. decrease in the price of gold, which may have discouraged investors from investing in gold ETFs. Total assets under management (AUM) aggregate ETFs against gold fell 1%. up to USD 200 billion. This trend now seems to have reversed. Bond yields have definitely fallen, a much greater specter of recession has appeared, and the dollar, while not weakening, at least definitely not strengthening. Only by mid-March, the largest gold-based fund, GLD, was supposed to receive over USD 1 billion, which could help bring the price to the region of USD 2000.

Gold as an answer to the recession?

According to Schroders gold it is generally doing very well in a recessionary environment, which we may be approaching in the second half of the year, if only because of what leading economic indicators show, but also because of the decline in lending due to the banking crisis. If that were the case, gold only lost about 1981% of its value during the recession in 1990 and 14. In turn, in 1973, 1980, 2001, 2008, 2020, when recessions also appeared, gold seemed to gain. In total, the average rate of return is 28%.

Thus, it seems that gold still has a chance to shine despite the recent spurt, as the implications of March's events on the broader economy are not yet known, and an environment of high uncertainty, along with lower yields, may support gold prices. A threat to such a scenario may be the Fed's clinging to further interest rate hikes and a stronger dollar.