Gold Price Update: Q3 2020 in Review

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Adding as much as 16 percent during the third quarter and 32 percent since January, the gold price continues to experience significant tailwinds. 

The yellow metal hit a new all-time high in August, when it broke past US$2,060 per ounce. But that high threshold proved unsustainable as prices pulled back to the US$1,900 to US$1,950 range in September.

While the run past US$2,000 was lucrative for gold investors, it evidenced a troubled global economy and the challenges created by the prolonged global pandemic. Read on for a look at gold’s activity in Q3 and what expert market watchers think could be next for the precious metal.

Gold price update: Q3 starts out strong

Gold started Q3 on solid footing, trending higher throughout July. An uptick in COVID-19 cases in South Africa, as well as the US, contributed to its mid-month gains.

“Gold is tied to the fortunes of the global economy and to our ability to successfully deal with the virus,” Johann Wiebe, lead metals analyst at Refinitiv, told the Investing News Network (INN) at the time.

“If the virus subsides, economies open up again and all gets back to normal, so will the gold price. If more cases re-emerge in the US and maybe other places, this hints towards more economic and mobility constraints, which will work in favor of gold,” he continued.

The uncertainty was motivational as investors looked to safe havens to hedge against a worsening economic landscape. Mid-July saw gold surpass its previous 2011 all-time high of around US$1,920.

“We are in uncharted waters on the gold price,” said Independent Speculator Lobo Tiggre when gold reached that major milestone. “Nominally, it’s now reached a new all-time-high. There is literally no resistance above, so it’s hard to say where it will stop. But all of the forces that have brought it this far are still in play, so yes, my hunch is that it will go higher,” he added.

By the end of the month, gold had added 11 percent to its value over the 30 day period, and 27 percent since the start of the year.

The higher price gave way to speculation that gold would continue to add to its value, with some forecasting US$3,000 in the near term, and as much as US$4,000 longer out.

Gold price update: US$2,000 threshold broken

Gold continued to edge higher into August, when it set its new record high of US$2,063. A weak US dollar, which marked a two year low in early August, and an inflationary tone contributed to its ascent.

Fiscal policy and stimulus were some of the factors that pushed gold to new heights. However, as Brian Leni noted, in addition to the quantitative easing and low interest rates, the pandemic was a major catalyst for the momentum.

“It was the COVID-19 pandemic, which has allowed governments and central banks the excuse to implement quantitative easing unlimited and to once again return to 0 percent interest rates,” said Leni, who is the founder of Junior Stock Review.

“More debt has been created in the last four to six months than the entire crisis in 2008. It’s this drastic response to the pandemic that has revealed the weakness in the global economy and moved smart money into the best insurance against financial calamity — gold.”

For the Outsider Club’s Gerardo Del Real, the race for the White House has also been a factor in gold’s move past the US$2,000 mark.

“The combination of low to negative real interest rates around the world, aggressive central bank policies that reward risky assets and increased volatility centered around the US election created the perfect storm for higher gold prices,” said Del Real.

Gold price update: Global ETF holdings balloon

Gold exchange-traded funds (ETFs) also broke previous records, with holdings rising to 3,785 tonnes globally in July. July was the seventh straight month of gold ETF inflows, with the addition of 166 tonnes valued at US$9.7 billion that month.

Central bank purchases up until August were also a price motivator. According to the World Gold Council (WGC), after 18 months of buying central banks became net sellers of gold in August.

“Global central banks sold a net 12.3 tonnes (t) during the month, continuing this year’s trend of a slower pace of accumulation compared to recent years,” reads a WGC report. “Uzbekistan reduced its gold reserves by almost 32t, bringing its remaining gold reserves to just under 300t.”

As mentioned, the yellow metal’s rally past US$2,060 was unsustainable, and prices fell back below US$1,950 before long. A stronger US dollar, rising equities and the potential for another round of stimulus in the US all weighed on gold.

However, as the likelihood of more stimulus hit a stalemate in Congress, the currency metal pushed above US$2,000 again before settling into the US$1,920 range.

Chris Vermeulen of TheTechnicalTraders.com gives a technical argument for US$2,200 gold.

By the end of August, gold had shed some of its early month gains to reach US$1,976.

But market watchers expect the yellow metal to again reach those heights, perhaps in the weeks or days leading up to the November 3 vote.

“I expect gold to surpass the US$2,060 range, but not before a choppy few weeks as we near the election and work through the outcome,” said Del Real, who also writes Junior Resource Monthly. “The reality is regardless of who wins we will see trillions more printed in order to offset the deflation brought on by the government-mandated COVID-19 lockdowns.”

He anticipates that a low interest rate environment will be in place for years as governments have backed themselves into a corner.

The position that central banks are now in is especially positive for gold, a known hedge against inflation.

“The financial system is broken and will require central banks to continue to keep the interest rate at 0 percent and provide the stock market with a constant flow of liquidity,” said Leni. “The gold thesis is still very much in place and, in my view, strengthening with each passing day.”

Gold price update: Gold companies positioned to profit

As uncertainty related to the pandemic shakes many businesses and industries globally, the gold sector has remained robust.

Numerous juniors have completed successful capital raisings, and some have been oversubscribed. Gold majors have been able to grow their profit margins, while others have acquired new projects.

Watch the video above to hear thoughts on the junior space from Joe Mazumdar of Exploration Insights.

Some of the excitement that was rampant in Q2 related to miners waned in Q3, but gold companies have generally performed well for 2020.

“Many of the best have held on well or reached new highs, but some that got ahead of themselves have corrected sharply,” explained Tiggre. “I’ve bought six new stocks in just the last month on this basis. But speaking of Q3, earnings for gold and silver miners should be spectacular, and bring a lot more investor attention to the sector.”

Leni of Junior Stock Review also noted the correction that began to emerge for juniors in August.

“After huge moves off their lows in March, it’s clear that the market needed some time to cool down, as many junior mining companies saw their share prices at least double,” he said, highlighting that putting money into juniors is a speculation on a management team’s ability to execute its plan.

“If management can’t execute, it doesn’t matter how good the project is. Chances are, you are going to lose money over the long haul,” said Leni.

The August reversal may also serve as a watershed moment as companies now need to proverbially put their money where their mouths are.

“With companies now cashed up, drilling has begun and could be a catalyst for a turn in the market in Q4 of this year,” he added. “The market is hungry for discovery.”

Gold price update: The September correction

Despite trending higher for the majority of July and August, volatility set in for gold in September, preventing the metal from retaining any gains. Pressure pushed the yellow metal below US$1,900.

By the end of the month, gold had fallen below US$1,900 for the first time in eight weeks, ending the 30 day period 4 percent lower. A surging US greenback recorded its best performance since March during the last week of September, an inevitable headwind for gold.

The value decline prompted dip buying, which buoyed the currency metal above US$1,850. The slip into US$1,800 territory was brief, and gold has since held closer to the US$1,900 level.

Gold price update: Looking ahead

The ongoing response to the economic upheaval caused by the coronavirus is expected to be a primary catalyst for a higher gold price, according to analysts.

“Until I find evidence that governments and central banks are finished with easy money — quantitative easing and low interest rates — I’m bullish on gold,” said Leni.

Pointing to the massive amount of global debt, he explained that he can’t see an end to money printing. He also doesn’t expect interest rates to rise.

“The world economy is essentially on a quantitative easing/interest rate life support. There’s no going back until it collapses or there is some sort of a planned reset of the system” he added. “What that looks like, I’m not really sure.”

The pending US election, along with the second wave of COVID-19, is expected to add tailwinds for gold in the short term.

“The elections will be impactful on the gold price, but only until we have a clear winner, which will make for a choppy trading environment for the next month or two,” Del Real said. “The bottom line is the two major parties aren’t having a disagreement about their willingness to pass multi-trillion-dollar stimulus packages; they are having a disagreement about where the money goes.”

Longer term, he is watching global capital flows, with an emphasis of the currency and bond markets.

“The gold price is consolidating, and the price movement has thus far been very correlated with the dollar,” he told INN. “I need to see a higher gold price along with a higher dollar to be convinced that we are headed to new all-time highs in the gold price.”

He does expect to see that sometime in the next two quarters. “If that is not the case, and if I’m right about a higher dollar over the next several quarters, then we could be in for further consolidation in the gold space that frustrates the most bullish of bulls in the short term.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.