This week the financial markets have seen their fair share of stress. The world has not yet recovered from the coronavirus pandemic, but new, additional negative factors, such as the growing tensions between the United States and China, are entering the picture. As a result, now is a great time to look at one of the world’s most popular safety assets - gold.
Traditionally, this precious metal has been something traders and investors turn to when the markets are troubled. Along with the Japanese yen, Swiss franc, and US dollar, gold is a great tool to diversify your portfolio and hedge risks.
So, what are the current issues on the financial markets? First of all, although it is good news that many countries have already reached the peak of the Covid-19 outbreak and are ready to reopen their economies, virtually all regulatory bodies have agreed that the world will see the worst recession of our lifetimes. Millions of people lost their jobs during the lockdowns, production fell to a near-complete halt, and there isn’t a single country that is expected to meet its original economic goals this year.
In addition, recently Donald Trump has renewed his conflict with China. The United States is the country most heavily affected by the coronavirus with 1.3 million cases and 77,000 deaths. Trump now blames China for not containing the virus properly and allowing it to spread to other countries. He is threatening to dissolve the phase-1 trade agreement signed a few months ago and to impose new tariffs on China.
Just as a reminder, the trade war between the US and China was one of the most closely followed issues of 2019 and had negative consequences for the entirely world, slowing down economic growth. In the context of a global recession, a renewed trade war will likely be even more devastating.
It is no wonder, then, that since the end of March gold prices have been climbing higher. The abundance of long-term risk is pushing investors to buy gold, which helps boost its price. Today there will be two key fundamental reports from the United States that could affect gold prices: the non-farming payrolls and the official unemployment rate (forecasted at the staggering 16%). Still, keep in mind there is a strong resistance level for gold at $1726 from which the price tends to rebound.
