Why did gold price fall from September 2020? Where was I wrong?
Near term comex gold futures reached a high of $2089.20 in August 2020. In September 2020 near term gold price had a high of $2001.20. Thereafter gold price has been steadily falling. I was expecting gold price to steadily trade over $2000. I was wrong. I had given my bullish view in all internet medium and the “Art of jewelery” magazine in India. I was very bullish in gold Diwali of last year. I was wrong. I had told everyone to invest in gold in Diwali of last year and Christmas of last year. I am happy to accept that I was wrong. Most of my long term predictions for gold has been accurate. Very few times I have been wrong. One such times was since last September. Let’s ponder why I was wrong on my bullish gold price forecast?
- The first and foremost reason why gold price fell was unthinkable rise of Bitcoin and crypto currencies. Crypto currencies are the new investment fad. They have defied all investment principles. Rise of crypto currencies and bitcoin reflects the risk taking ability of new age investors. Gold price crashed as it diverted gold investors to bitcoin and crypto currencies.
- Coronavirus vaccine. In August of 2021 only the Russia’s Sputnik vaccine was there. In USA covid vaccine success was declared just after the result of US presidential election result. India and a number of other nations had a locally developed covid vaccine ready by early December. The pace of global covid vaccination as defied all expectation. Economic optimism due to covid vaccine has resulted in investors switching from safe havens like gold to stocks and bonds.
- Stimulus and free money. UK, USA and Eurozone are among the large number of central bankers which are adding more stimulus money even now. A sharp rise in the number of people getting covid vaccines is not preventing central banks from reducing stimulus. Infact there is expectation that global money supply will remain at current levels till end of next year. Risk taking ability has zoomed. Young traders between eighteen and thirty years prefer to invest in anything which gives a return of over fifteen percent per month. Gold is an untouchable investment class for the young generation of traders. (I was expecting gold price to rise with every increase in money supply. )
- Some central banks were sold gold this year. Central banks selling gold are always negative to gold price in the short term.
- Bond yield pace of rise was not expected as well. Central banks are comfortable with current rise in bond yield.
- Inflation and hyperinflation expectation not supporting gold price. Hyperinflation will be there as the world nears normalcy. Gold prices generally rise in a hyperinflation scenario. Federal Reserve and most central banks believe that hyperinflation will be due to lower base price effect. It will not last long.
Gold price can stay soft or stay below $1811 support for a much longer period than most of us expect. $1811 is the price which gold has to float over for a few continuous weeks to starts its bullish journey this year. January 2020 low of $1524.30 (comex near term future) is the key support price. Gold price has to trade over $1524.30 for the rest of the year to be in a long term bullish zone.
Once again I prefer only physical gold for long term. I am against ETF, Futures and Options for long term investing in gold. If you have a physical gold investment I will suggest to have the patience. Averaging we will probably we will decide after the release of US March nonfarm payrolls in the first week of April.