The Return of Gold as a Safe Haven

One of the beneficiaries of this massive supply of US Dollars from the Fed is Gold.

The US Federal Reserve took exhaustive measures today help provide more stimulus to a world economy which everyday seems to be on the brink of collapse.  Today’s measures aim to pump US Dollars into the system, as firms around the world scramble to secure funds for simple everyday operations, among other things.

One of the beneficiaries of this massive supply of US Dollars from the Fed is Gold.  In 2008, gold was selling off as the Fed began it Troubled Asset Relief Program (TARP).  After the program was announced, gold moved higher.  Investors realized that the Fed would have to unwind from the easing at some time in the future.  Gold put in a high the first week of September 2011 after a 3-year rally from 681.75 to 1912.29, a gain of 180%. The still stands as the all-time high in gold.

Market chart of XAU/Gold vs USD. Analysed in March 2020

Source: Tradingview,

Fast forward to today.  Although the time period has been condensed due to the rapid spread of the virus and the rapid nature of the selloff in equities, gold has been moving lower over the last few weeks.  When the selloff in gold first began in mid-February, it was considered a flight to safety.  However, as the selloff continued, gold needed to be sold in order to raise cash for margin accounts.  Today, after the (Term Asset-Backed Securities Loan Facility (TALF) was announced, gold immediately shot higher. 

Market chart of XAU/Gold vs USD. Analysed in March 2020

Source: Tradingview,

Can gold move higher as much as it did from 2008-2011?  Anything is possible, and gold is off to a healthy start today,  up over $45.00, or 3%.  Near term resistance is 1547.75, which is also the 38.2% Fibonacci retracement from the highs in February to last week’s lows.  Above that is horizontal resistance at 1563 and 1632.  This year’s high at 1702 is the final resistance before the all-time highs.  Support is $100 lower near 1450.

I’m not sure what else the Fed has left in their briefcase, but if they continue pumping money into the system, one of the ultimate beneficiaries should continue to be gold.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account