Recent events in the world economy have set many investing enthusiasts thinking about the potential profits of commodity trading.
Hard assets like soybeans, metals, oil, and livestock tend to do well in crisis situations. The COVID virus pandemic, as well as an uptick in political turmoil in multiple places, has opened up a door for those who value real, as opposed to paper, assets. Gold, chemical symbol AU, is probably the most popular of the precious metals and is, technically speaking, considered a commodity even though it behaves in unique ways and sometimes resembles traditional stock shares.
Regardless of how people choose to classify it, the yellow metal has been experiencing price swings that could spell very good things for anyone looking to add it to a portfolio, use it for swing trading, or even day trade it on the futures exchanges. What makes so many investors believe gold will have a great year in 2020 and likely continue to rise throughout 2021? Here are some key reasons to be bullish on mining stocks, bullion, ETSs, and indices that tend to track gold’s day to day price.
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COVID Is Not Over
The COVID pandemic is still worth watching, as market enthusiasts say. That translates into at least several more months of uncertainty, the best fuel for propelling the price of all precious metals higher. As long as there’s not a vaccine, no return to normal for retail businesses, and states with mask mandates, gold has wings. Consider what’s happened in the past year. Prices hovered between $1,500 and $1,600 until the virus arrived. After that, per-ounce values quickly moved past the massive psychological barrier of $2,000 and receded. For more than a month, consolidation has been taking place in the high $1,900 range. Commodities investors know that consolidation during a period of uncertainty can mean a potential breakout on any news. In this case, the continued non-resolution of the COVID situation can serve as a springboard for price. With safe-haven investments, bad news, or even no news, can push prices higher.
The Recent High Was Deceiving
There’s plenty of room for the world’s most popular precious metal to break out of its current consolidation range and break out. Prices are very close to an all-time high. In current dollars, that peak was reached just a month ago, but inflation-adjusted dollars tell a different story. For the shiny stuff to reach a true, adjusted high in real dollar value, it would need to hit $2.150 just to match its performance in 2011. But the 1980 value, in current dollars, is $2,700, which is still a far way off. The bottom line is that the yellow asset has room to grow before it reaches one of those psychologically important peaks. So, the answer to the obvious question is that no, gold hasn’t reached either of its two loftiest value points, but it’s getting close to the one we saw in 2011.
Trends Tell a Story
Virtually every trend for AU is positive. As of mid-September 2020, the 30-day price line is up about $22. The six-month and one-year values are up nearly $500. And long-term trends, like the 5-year and 10-year cycles, are about $820 and $700 up. In fact, it’s a challenge to find any timeline that shows a downtrend. A glance at the 20-year chart reveals other aspects of the golden pricing conundrum. Bullion is up $1,685 in the two-decade period, showing a slow, long rise from 2000 until 2011’s peak. Then, the numbers fell steadily during the Obama presidency and began rising again in 2016 toward today’s high very near the $2,000 mark. The very big picture is one of two higher highs, at least in nominal dollars, between 2011 and 2020. Throw a bit of economic uncertainty into the mix, along with an upcoming presidential that is sure to be historic in its own ways, and you have all the ingredients for a third successive higher high.
U.S. Government Economic Policies are Helping All PMs
The early-September announcement by the FOMC of the U.S. government offered solid hope for PM investors. The committee decided to maintain many of the key interest rates at historically low levels, with a target between zero and .25 percent. The announcement caused many of the world’s major analysts to extend their bullish PM predictions through 2021. Does this mean gold could reach $3,000 by the end of 2021? Given stagnation on the health pandemic front, actions by the Fed, and the fact that prices are inching close to an historic high, the long-term outlook for the yellow metal is highly favorable.