Gold prices are soaring, on track to hit nearly $2,000 an ounce this year

Surging coronavirus cases, monetary easing, economic stimulus prop up bullion

  
Image used for illustrative purpose. Customers in a gold shop in UAE.

Image used for illustrative purpose. Customers in a gold shop in UAE.

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Gold is on track to hit nearly $2,000 an ounce before the end of the year on strong safe-haven demand and low interest rates amid the worrying rise in coronavirus cases, an analyst said.

“Gold’s all-time high of $1,921 is now within reach. The stars are aligned for gold prices to continue to rise,” Georgette Boele, senior foreign exchange and precious metals strategist of ABN Amro, wrote in a research note.

"Investors will only be satisfied if the former peak in gold prices at $1,921 per ounce is reached and taken out. Above that the important psychological level of $2,000 per ounce is within reach," she said.

At the time of writing, the precious metal was holding above $1,807 an ounce, up by more than $300 since coronavirus became a global pandemic in March.

One of the biggest drivers behind higher gold prices is the central bank policy, according to Boele. Interest rates in several countries have been reduced to near zero as governments deal with the financial fallout from the pandemic.

“Not only are official rates close to zero in a large number of countries, they will unlikely go up in our forecast horizon,” said Boele.

The bullion pierced through the $1,800 level last week as investors turned to safe assets in an increasingly depressed economic environment. Government stimulus packages, monetary easing and low interest rates are also propping up the yellow metal.

In its revised price estimates, the bank also noted that by September this year, gold will hit $1,850 and continue heading north to average $1,900 by December.

“Fears of further increases in infections and related lockdown fears have been driving demand and thus prices,” said Carsten Menke, head of next generation research at Julius Baer.

“This suggests that short-term price risks remain skewed to the upside as long as the virus does not come under control,” he added.

Menke, however, noted that an improvement of the economic environment will weight on safe-haven demand and cause prices to move “somewhat lower.”

According to Chandu Siroya, vice chairman of Dubai Gold and Jewellery Group (DGJG), the current indicators point to more upside for gold.

“It will continue to increase for as long as there is uncertainty, [especially since] gold is the only safe haven where all the investors come in. [In fact], the exchange-traded funds (ETFs) are doing very well,” Siroya said earlier.

(Reporting by Cleofe Maceda; editing by Seban Scaria)

Cleofe.maceda@refinitiv.com

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