Memories Of Previous QE Pushes Gold Price To Its 7-Year High

Gold Prices
Gold Price

Gold price neared its seven-year high as investors rushed to safety after central banks shifted to printing money to calm markets. The Federal Reserve is expected to pump more than $4 trillion into the financial market while the ECB is expected to splash the markets with more than €750 billion. The Bank of Japan, Bank of England, and PBoC have also ratcheted measures to increase money supply.

Subsequently, demand for gold bars from retail traders is rising. According to the Financial Times and Reuters, gold dealers are running out of supply as more people shift to gold, which is often called a currency of last resort. This is because investors expect gold to perform similarly to what it did in the 2008/9 financial crisis. After the crisis, gold reached an all-time high as the Fed started QE.

Meanwhile, gold supply is expected to reduce. Just this week, South Africa announced a nationwide lockdown that will lead to less gold being mined. In Switzerland, the biggest gold refiners have shut down their operations for a week.

The sell side is getting bullish on gold as well. Yesterday, analysts at Goldman Sachs sent a note to investors asking them to buy gold as they prepared for currency debasement as policymakers battle to contain contagion. Goldman expects gold to hit $1800 this year and $2000 in the coming year.

Still, the biggest risk for gold is that India, its biggest market has gone into a lockdown. This could temper demand and lower the overall prices.

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Gold Price Technical Analysis

Looking at the daily chart below, we see that gold made a bullish engulfing pattern on March 20, and followed it up with two bullish candles. We also see that the pair is trading at the 61.8% Fibonacci Retracement level. In the near term, I expect that the pair will attempt to retest its YTD high of 1,702. This will be confirmed if the pair moves above the 78.2% Fibonacci Retracement level at 1,640.

On the flipside, there is a possibility that the pair will attempt to move back below the 1,600 level.

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