The first half of the year has been a tumultuous one for gold. It has risen and fallen against the backdrop of the US dollar and US Treasury yields. In addition, sociopolitical events, particularly political and economic situations in the US, have impacted gold prices significantly.
Despite this turbulence, in the long run, gold is still a safe-haven asset in times of crisis—it is considered a good hedge against inflation.
The US economy is now in the midst of recovery; the world is still battling with Covid-19. Consequently, with so much uncertainty and volatility, how will upcoming events affect gold prices for the rest of the year?
Emergence and surge of new Covid-19 Strains
The new Covid-19 strain, first spotted in India, has now been seen in more than 60 countries since the beginning of the year. This new strain, known as the Delta variant, seems to be more transmissible than the other variants. Coupled with the decreasing effectiveness of vaccines against the Delta variant, it has led to a surge in Covid-19 cases across various Southeast Asian countries.
The ongoing surge in cases will cause uncertainty and an unfavourable global economic outlook among investors. As a result, investors will turn to gold as a safe-haven asset, thus driving up the demand and subsequently its price.
The success of vaccination programs in the US
Vaccination rollouts in the US have been a success thus far. At the start of May, President Joe Biden set a goal of having 70 percent of adults given at least one dose by 4th July. As of June, 64 percent of adults have already received a shot, while 52 percent are fully vaccinated. As such, the US vaccination program is on track to reach its goal by July.
If the mass rollout of vaccination in the US can contain the spread of the Covid-19 virus in the second half of the year, it will eventually lead to a strong economic recovery. With an economic outlook on the upswing, investors will regain their appetite for riskier investments, thus dampening gold prices.
Volatility in other investment markets
On the other hand, the cryptocurrency market has been experiencing volatility lately. Elon Musk had declared on Twitter in mid-May that Tesla would no longer accept bitcoin, owing to its high environmental costs. As a result, the announcement caused a major sudden drop in the market, turning market sentiments bearish.
In addition, China had decided to suppress the digital trading market by banning cryptocurrency exchanges. Bitcoin’s market value plummeted 50 percent from more than USD 1 trillion to below USD 630 billion in May.
Even as the cryptocurrency market attempts to recover from its crash, investors have seen how volatile this investment asset can be. Thus, they will be increasingly motivated to seek shelter in safe-haven assets like gold.
US economic growth
The most recent economic data for 2021 presents a strong growth in the US economy. In the first quarter of the year, the US economy had grown by 6.4 percent. The economic recovery is attributed to the USD 1.9 trillion stimulus package, which has encouraged more robust public spending.
Furthermore, US weekly unemployment claims have fallen past 400,000 in the last week of May, indicating a recovery in the labour market. A lower unemployment rate will push the US dollar up, putting pressure on gold prices.
However, with fiscal measures in place, the Federal Reserve will incur more debt, thus weakening the dollar index. A pullback in the US dollar will support gold as it will be cheaper for investors outside the US to purchase gold.
Investors will also expect inflation for the rest of the year as fueled by increased public spending. As a result, gold prices will rise as it is seen as a hedge against inflation. Overall, inflation concerns will bring about bullish sentiments in the gold market.
Ready to begin your gold investment journey?
Gold remains optimistic at the half-year mark despite pressure from the US economic recovery. Analysts believe that with the ongoing inflationary pressure, gold will continue to ride an upward trend.
With unpredictability and uncertainty in the market, it is crucial to diversify your investment and consider gold in your portfolio. As a secure investment, gold is not correlated to stocks and other financial assets. This ensures your portfolio has a lower risk in this volatile market.
Are you interested in starting your gold investment journey this year? There are many online trading platforms for you to choose from to begin your gold trading.
Everest Gold is a convenient platform that allows you to trade anytime and anywhere through their app. As a reliable platform, the gold on the app is backed by actual physical gold, yet secured and insured by Everest Gold.