XAU/USD: What to Look for in the Next Step

I. Market evaluation (Fundamental Analysis)
- The very first rule of gold is that the price has always increased
whenever a crisis occurred so far. There are many reasons for the price
to go up, such as trade struggles, inflation, climate change, etc. and
whether these impacts are more or less, they are all the premises to
leverage gold prices.To get more news about WikiFX, you can visit wikifx news official website.
- In the last half of century, gold price has experienced 2 very
strong increases. The first round was when governments gave up the
policy of controlling gold price and eased the ban on private ownership
of gold, happening around 1970. The price of gold then seemed like a
long-term repression that had the opportunity to launch, in the exactly
same time when economic and political points are more volatile, creating
a “gold rush” speculation, price soared from 35 USD/ounce to 800
USD/ounce in 1980.
- It was a time when gold prices were at their peak, and from there
began to go down after central banks sold out tons of gold. By 1999,
each ounce of gold cost only 250 USD. - The downtrend then ended when
European central banks agreed to coordinate in selling gold to stabilize
this precious metal price. China also expanded the object of people
allowed to own gold, the amount of buying back increased.
Exchange-traded funds (ETFs) - which represent gold-holding investors -
also create favorable conditions for people to hold the bullion.

Also from 2003 to 2011, the annual demand for gold has increased from
about 2,600 tons to more than 4,700 tons, pushing prices up to a peak of
1,900 USD/ounce in 2011, then hindered market demand. As a result, the
price has dropped to only 1040 USD/ounce by the end of 2015 and early
2016, from then until 2019, when central banks started lowering interest
rates, dragging government bond yields down, gold become more
attractive to investors.
So the question now is whether gold (XAU/USD) will continue to
increase in 2020-2021 or not? And what factors will play the main role?
1. Economic Instability
Thanks to special physical properties, gold is both a special
commodity and a currency to store and trade. Since ancient times, gold
has always played an important role in the economy, with the role of
real assets used to reserve, whenever the world economy is unstable,
people will rush to buy gold. The reason is that when the economy is
difficult and unpredictable, doing businesses will become more
struggling, other high-risk investment channels, declined securities,
devalued currencies, etc. gold is considered as the most convenient safe
haven asset. Great buying demand will push gold price up.
2. US – Index
Because the currency US dollar acts as an international payment
currency, and the world price of gold is also traded in US dollar, so
the relative value of gold is expressed in US dollars. Therefore, when
the USD depreciates, it means that gold price increases and vice versa.
3. Gold Supply
Because gold is also a commodity, its price also changes according to
the law of supply and demand. There are three factors that change the
world's gold supply.
· First, the nation's gold reserves policyIf one or several countries
decide to buy gold to store in large quantities, the world gold price
will increase and vice versa. Therefore, monitoring the world's news
regarding gold trading policies of major central banks will be good for
predicting gold prices.· Second, the influence from the gold trading of
large fundsCurrently there are a number of large funds holding huge
amounts of gold. Every movement of these big players will has a strong
influence on world gold prices. In particular, these funds have launched
fund certificates to attract many speculative investors into this
market.These funds include:- IMF: holds about 3,100 tons of gold- SPDR
Gold Trust: This is considered the largest gold investment fund in the
world. This fund currently holds about 768 tons (2019).
· Third, the world gold production/mining
The countries known for having the largest gold mining output in the
world are China, Australia, Russia, USA, South Africa and Canada. Every
time the mining output in these countries declines, it will cause world
gold prices to rise and vice versa.
Since the Covid-19 pandemic began to spread from the beginning of
2020, putting the world into a deep crisis, companies filed for
bankruptcy are increasing, unemployment rate goes up day by day. In
addition, those lockout policies to limit the widespread of Covid-19
epidemic have caused a decline in exports, forcing the world's central
banks to launch bailouts for their economy. In the US, for example, the
US Federal Reserve has launched a $ 2,000 billion bailout package,
leading to a decline in bond yields and an increase in the risk of
inflation, which has slipped prices for other assets and currencies.
- However, the pandemic situation is still quite complicated in the
present context, the second wave has come back in quite a lot countries
and territories, plus the widespread situation is quite unpredictable,
for example, Australia and several US states have reported a spike in
new cases of virus infection as well as Latin America or India, the
second largest consumer of gold bullion in the world.