- Gold prices hit $1,619 today, a fresh 7-year high
- Investors are fleeing to safety as global slowdown fears increase
- Bulls are likely to target $1,626 next in the short-term, with $2,000 seen as a possibility in the long-term
For the second day in a row, gold prices hit a new 7-year high of $1,619 on increasing demand for precious metals. The price action is now approaching the first short-term target for the bulls at $1,626. City analysts believe that this move has legs as they predict a trip towards $2,000 .
Fundamental analysis: Increased worries about the global economic impact of the coronavirus
It appears that negative headlines and consequences from the coronavirus outbreak are intensifying, which is providing a boost for precious metals prices. Investors are shifting their funds towards safe-haven assets, and gold is arguably the safest asset in the world.
Some analysts believe that investors are now in the “FOMO” – fear of missing out – mode. The gold prices are rallying and this leg may extend much higher than previously anticipated, with analysts from Citi predicting a trip towards $2,000.
“Gold should perform as a convex macro asset market hedge, resilient during ongoing risk market rallies but a better hedge during sell-offs and vol[atility] spikes. [Gold can also] outperform on a risk market unwind should coronavirus risks impact supply chains and thus US earnings momentum,” the Citi analysts led by Ed Morse said.
Global business giants, such as Adidas, have already reported a negative impact from the coronavirus. Tech giant Apple did so as well as they warned that they are likely to miss out on the earnings forecast for the current quarter.
„We have been experiencing a material negative impact from the coronavirus outbreak on our operations in China,“ Addias said in a statement.
Technical analysis: Bulls are targeting $1,626 next
Following a wedge (the converning red lines on the chart below) breakout that occured in January last year, gold prices have been continuously pushing higher. Exactly one year later, the price action printed a 7-year high of $1,557 on the news that U.S. assassinated the top Iranian general.
In the meantime, the price action initially pulled back to find more buyers at a lower price before staging another assault higher, which finally took the prices above $1,600.
Bulls are likely to target the zone around $1,625 next, possibly even today or tomorrow. As for the next week and months, the area around $1,735 may be the next target. On the downside, the previous multi-year high of $1,557 is now poised to act as a resistance.
Prices of gold have printed fresh multi-year highs on the renewed demand for precious metals as investors flee to safe-haven assets. The coronavirus outbreak is expected to further increase global slowdown as companies start to prepare for lower-than-expected earnings and future guidance for the next quarter.
Citi analysts believe that gold prices have a lot more room to grow with a $2,000 mark as the potential destination later this year.