Stock market traders have hope for a quick recovery of the global economy from the effects of the coronavirus pandemic. It is indicative that along with the record performance of stock market indices, the yield on 10-year US Treasury bonds rose to 1.5%, and the dollar strengthened against other leading currencies by 1%.
In addition, the correction in the gold market coincided with a large-scale rally in bitcoin, the price of which exceeded $ 50,000. Central banks and authorities provide cheap liquidity to the stock markets, generously helping businesses with economic stimulus packages. The optimism of traders in the traditional asset market is also supported by news of vaccinations in developed countries. However, the World Health Organization believes that until the majority of the world's population receives the vaccine, it is untimely to talk about the end of the pandemic. Consequently, with the introduction of new lockdowns, overbought stock, bond and cryptocurrency markets could be hit hard.
In the current environment, the yellow metal remains not very much in demand from industry, central banks and institutional investors. In industries where precious metal is used as a raw material, the full recovery of activity has not yet taken place (high technology, medicine).
The central banks of several developing countries continue to increase their gold reserves, namely Turkey, India, Cambodia and the UAE. However, the large buyers of the past years have not appeared in this market for a long time. We are talking about China and Russia. Therefore, in 2020, central banks as a whole purchased 60% less gold than in 2019.
Moreover, gold exchange-traded funds are reporting stock outflows. According to the World Gold Council for February 15-19, the volume of shares decreased in financial institutions listed in North America (-15.8 tons) and Europe (-9.6 tons). Physical gold remains in demand for individual investors looking to protect their portfolios from economic and political risks.
Therefore, the demand for investment coins this year is not weakening. The US Mint sold 220,000 ounces of the Golden Eagle in January, a record monthly figure since December 2009. In February, sales reached 125.5 thousand ounces, up 1692% year on year. The situation in the jewelry markets in China and India is gradually improving. Consequently, demand for physical gold will help a new rally in the precious metal in the event of a correction in stock markets and a deterioration in the global economy.