The spot gold price plunged into free fall on Wednesday’s session. This is after it was hit by lower risk aversion amid widespread gains from the world’s leading stock indexes. In this context, the price of XAU / USD plummeted by more than 1.6%. Gold settled close to $1,700 an ounce, its lowest level since the end of May.
Investors continue to cut their exposure to defensive assets to position themselves in higher-yield stocks. The S&P 500 deepens its recovery and consolidates above 3,100 points amid growing optimism about the reopening of the global economy.
The US Private Sector Job quality Index, JQI, assessed that job losses in May were at 2.8 million. The results were less alarming than people expected since analysts forecast the number to be 9 million. The report created the impression that the worst of the health crisis had passed. People thus expect that economic conditions will begin to improve consistently.
Still, caution is necessary. The rebound in the stock market appears to be part of a phase of irrational exuberance underpinned by speculation. With more than 40 million unemployed in the United States, a somewhat uncertain economic revival, and mounting tensions between Washington and Beijing, investor sentiment could sour overnight. This creates vulnerabilities for risky assets and a relatively favorable environment for safe-haven securities like gold.
Another factor that would continue to benefit the precious metal is the ultra-accommodative monetary stance of the world’s leading central banks and the low returns on fixed-income securities. Interest rates are at ground level and, in some cases, in negative territory. This means it is not difficult to conclude that gold has a long way to go in a medium-term horizon.
The ratio of the price of gold and silver reaches its maximum
The ratio of the price of gold and silver describes the rate of how many ounces of silver can be purchased with one ounce of gold. This reached all-time highs in March 2020, with a value of 126.43 ounces for silver for each ounce of gold. This is a critical moment in the history of precious metals. The market has never reached such a ratio between silver and gold before.
The gold and silver ratio may indeed increase. This would mean that the price of gold is growing faster than the price of silver.
The spot gold price has found support in the $1,690 area after traders oversold it for the past two days. If buyers regain control of the market from current levels, the first target for the bulls would be at a resistance of $1740.
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