Gold prices are extending their gains and currently trading at 1,875. Gold price is up nearly 23% year-to-date. The
positive trend in the gold spot prices is chiefly due to the escalation in the geopolitical tensions and uncertainty
over the second stimulus package. Investors aren’t afraid of gold price reaching record high and there are two clear
evidence that back this argument.
The U.S.-China tensions escalated further yesterday when the U.S. ordered China to close its consulate in Houston. China
has confirmed it is going to reply back with an equal retaliatory action. This tit-for-tat action has made investors
nervous and some are hesitating to back the U.S. equity markets. This is despite the fact that the S 500 has erased its year-to-date losses.
Gold traders are also betting on the yellow metal price because there is uncertainty about the future of the US
unemployment benefit program. It is going to expire this month and this mean that Americans will no longer get the extra
$600 support in terms of jobless benefits. The debate is on in Washington about the second stimulus round that could
include jobless benefits, and also stimulus checks for Americans. However, so far, it appears, that politicians are
playing politics, and their may not be any outcome by the end of this month.
Gold traders are considering this as a risk off opportunity and they know that the current coronavirus stock market
rally will crash in the absence of another stimulus support. This has brought more interest in the gold prices. Even if
the current stimulus package gets the green light from Washington, traders do know that it will only provide tailwind
for the U.S. equity markets for sometime only and eventually the U.S. equity markets will stall again.
Basically, the US economy and the US equity markets has become an addict of stimulus; it relies on the fiscal stimulus
and monetary policy measures. As long as it is getting these in some form, traders are ready to push the U.S. stock
market higher. However, the skeptics are not happy and they do not believe in this rally. This is why we keep seeing
more interest and new money flow in gold ETFs.
Total known gold ETFs (Exchange Traded Funds) holdings show that traders are still pouring more money, and there is no
fear among them that the gold price is reaching towards its record high.
Another evidence of traders supporting the gold price and not getting afraid of gold price getting close towards its
record high is the below chart. The net non-commercial positions gold positions are still rising. Investors are still
pouring money and there is no sign of weakness here.
The bottom line is that gold prices are likely to continue their journey to the upside and the actual real target for
the gold price is $2,000. Gold price reaching its record high will only be a fancy headline and the evidence shows that
traders and investors are not afraid of this record highs. They want to push the gold price high- for now.