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Gold prices are up, thanks to a souring US-China relationship, weak global economic reports due to the coronavirus, and statements by the chairman of the Fed, Jerome Powell. The precious metal rose 1 percent on Monday, trading above its seven-year-high level of $1,760 per ounce.
What needs to be seen in the next seven months is whether the precious metal will break its all-time high of $1,921/oz back in 2011.
The price of gold has boomed since it broke above the $1,350/oz level in mid-2019. Clearly, the Covid-19 pandemic has given it an additional boost to now $1,730/oz.
White House trade advisor Peter Navarro suggested that Beijing sent "hundreds of thousands of Chinese on aircraft to Milan, New York and around the world” to spread the virus after hiding it from the world for two months.
Federal Reserve Chairman Jerome Powell said in an interview that the US economy could shrink up to 30 percent in the second quarter and a full comeback may depend on a coronavirus vaccine. Moreover, US data revealed on Friday showed retail sales and industrial production both plunged in April, putting the economy on track for its deepest contraction since the Great Depression.
Besides the safe haven demand that supports Gold prices, the economic stimulus unveiled by countries to offset the negative financial impact due to the coronavirus also tends to benefit gold, as it is widely viewed as a hedge against inflation and currency debasement.
Bjarne Schieldrop, chief commodities analyst at SEB, a leading Nordic corporate bank, expects to see the price of gold to rise to record levels in 2020 before a drop back to normal levels in 2021.
“The gold price now looks like it is almost guaranteed to break above the all-time-high gold price of $1,921/oz from 2011. This could happen very quickly,” Schieldrop said.
"Governments all around the world will now spend money they don’t have, and interest rates will stay close to zero and real rates will likely be negative for an extended period. These are all very bullish ingredients for the gold price," he added.
Bullish run
The yellow metal, which usually appreciates on expectations of lower interest rates, has rallied some 15 percent this year as central banks rolled out a wave of rate cuts and other stimulus to limit economic setbacks from COVID-19.
"The market continues to speculate about negative interest rates in the US and extremely low interest rates and cheap money all over the world," Reuters quoted Commerzbank analyst Eugen Weinberg as saying.
In a press briefing, Swiss bank UBS said gold could rise to at least $1,800 per ounce in the coming weeks. “High levels of uncertainty and negative real rates of interest continue to keep gold in the spotlight as an attractive diversifier and a hedge against risk,” the bank noted.
One of the biggest US banks, Bank of America (BofA), has a bullish view on the gold and expects the prices of the yellow metal to hit the $3,000 mark per ounce in the next 18 months.
"As central banks and governments double their balance sheets & fiscal deficits we up our 18 months gold target from $2000 to $3000/oz," BofA said in a report, adding, "A strong USD backdrop, falling equity market volatility, and weak jewelry demand in India & China may remain headwinds."
(Reporting by Seban Scaria, editing by Daniel Luiz)
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