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COVID-19 and the precious metal market


August 24, 2020 ( Newswire) 2020 has been an extremely volatile year so far, with the coronavirus crisis affecting nearly every country and industry. As the pandemic spread from China to the rest of the world, millions of people were sent into home quarantine, factories were closed, and traffic on major roads fell to nonexistence. While many instruments were pressured by the new reality, others were boosted, and while some markets were quick to recover, others still feel the pain.

In today's article we will look into the precious metal market in 2020 and try to assess how it reacted to the coronavirus crisis. Since we cannot cover the whole market, we will examine a popular CFD: gold. If you trade commodities CFDs online, you already know that gold has been extremely volatile in the first 7 months of 2020, and it was not all an uptrend.

Early 2020 and safe havens

As a traditional safe have instrument1, gold price tends to increase during times of market uncertainty, although this does not always happen. In early 2020, when the coronavirus was becoming a familiar name around the world, various countries were considering or starting to introduce lockdown measures and global markets were affected by the uncertainty. With traders' risk appetite changing, the price of gold CFDs began to climb, increasing by more than 10% between January 1st and March 9th.

The March crashes

It might seem faraway now, but March 2020 was a hectic month. As the number of coronavirus cases soared and the word "pandemic" was becoming a familiar term, countries worldwide were closing their borders and more and more people were sent into home quarantine. You might think that the escalation would boost gold price even higher, but in reality, it crashed. Between March 10th and March 16th, gold price fell by more than 14%, experiencing its worst week in 4 decades.1

Why? While we cannot know for sure, there are several plausible explanations. One of the more likely ones is that the sudden market crash created by the pandemic fears left traders with few resources. With panic spreading, some traders might have been selling gold in an attempt to cover soaring losses.2

The uptrend resumes

After the quick crash in March, gold price recovered. April, May, June and July - it started climbing and kept edging higher with each passing month. Between March 19th and July 30th, gold price skyrocketed by over 30%. At one point in July, gold futures crossed $2,000 for the first time in history.3 It was supported by several factors. The most prominent one is, of course, the continuing pandemic that remains a major concern in many parts of the world. The possibility of a global second wave also affects traders' risk appetite and market sentiment, adding support to safe haven instruments.4

In addition, the massive stimulus packages introduced by many central banks and governments, fueled inflation concerns.4 Since gold cannot be printed like fiat currency, it may appear as a more stable choice during times of rising inflation. Other factors boosting gold prices were the low interest rates1 and the ongoing tensions between the United States and China.4

What's next?

No one knows what the future holds, but the market is still far from stability, as coronavirus fears continue to plague nations worldwide. There are many conditions that may contribute to gold's volatility in next few months including the possibility of additional stimulus, the currently weak dollar, intensifying geopolitical tensions and more.3

Other precious metals

Many other precious metals experienced high volatility in 2002. For example, after decreasing sharply between February 24th and March 18th, silver price started rising, adding over 85% by July 28th. In fact, between July 20th and July 28th alone, silver price increased by over 25%.

While platinum movements in 2020 did not necessarily track gold's movements, the precious metal did increase - adding 18% between March and July.

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