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The majority of investors expect the price of gold to rise further in the next few months, even after surging past the milestone $2,000 level.
According to a poll conducted by Kryptoszene, an information platform that publishes cryptocurrency forecasts, 87.2 percent of investors in precious metals are confident that the bullion will climb even higher in the second half of the year.
Over the next three years, the precious metal is also forecast to outperform all other asset classes in terms of price development.
“Various market players seem to share the sense that gold still has a long way to go,” said Raphael Lulay, Kryptoszene analyst. “Driving the price rise are loose monetary policy, deficits in national budgets, fears of a second wave of infection and geopolitical uncertainties,” he added.
Gold prices hit record levels in the past several weeks and recently breached the $2,000 mark on the back of investors rushing into safe-haven assets amid the coronavirus pandemic. There are speculations that the price could even go higher to reach $3,000 an ounce.
The main driver for gold’s dramatic rise has been investors flocking to the precious metal to maximize returns during a pandemic. Demand for gold jewelry, however, has plunged as consumers were discouraged by the high prices.
Record ETF inflows
According to the World Gold Council, the first half of the year saw record flows into gold-backed exchange-traded funds (ETFs) of 734 tonnes. These record inflows have been fueled by the global response to the pandemic by the central banks and governments, which have imposed interest rate cuts and rolled out stimulus packages to aid affected businesses.
“Investor demand has gone from about 25 percent of gold demand to about 45 percent in the second quarter. So, investor demand as a share of gold has almost doubled,” noted Francisco Blanch, head of global commodities at the Bank of America Merrill Lynch Global Research during a recent conference call.
“So far it seems to be the case that investors have geared their portfolios partially believing the unprecedented fiscal and monetary expansion would lead to a large surge in investor gold buying, with ETF inflows at record levels in recent weeks,” he said.
Despite the price rally, Blanch said, gold will continue to shine. “This is an investor-led rally so far, but we think that we still have a lot of room to grow,” he added.
More gold investors coming in
Blanch pointed out that so far, central banks have reserved their cash for liquidity reasons and have curtailed their gold purchases, while gold jewelry demand has dropped. When more investors come in, and central banks decide to increase their gold holdings, that will fuel another price increase for gold.
“To a large extent, the rally has been ETF-driven, mostly driven by investor buying. And we see that continue over the course of the next six to 12 months with eventually central banks coming in, and with allocations increasing,” said Blanch.
Georgette Boele, a currency and precious metal strategist at ABN Amro Group Economics, noted that low interest rates, coupled with a weak US dollar, have also provided a major support for gold. Interest rates are currently at low levels, with official rates in many countries at close to zero.
“Most central banks have announced quantitative easing (QE). The Fed has embarked on unlimited QE and the Bank of Japan and the European Central Bank also have QE programs. This sounds like music to the ears of gold bugs as money floods into the market and currencies begin to decline,” Bole said in a research note.
“[Also], in a number of countries, there are negative rates. Gold is not paying any interest rates. So negative rates are another major support to gold prices especially versus the euro,” she said.
(Reporting by Cleofe Maceda; editing by Seban Scaria)
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