Gold prices could surge beyond the $2,000 level this year as economic and geopolitical uncertainties lead to a rush for safer assets, analysts predicted.
Gold price had hit a record high of $1,920.70 in 2011, according to Comex futures, and it won’t come as a surprise if that mark is breached in the coming days. Aside from the coronavirus-related uncertainly and geopolitical agitation, the other factor that pushed the price of the yellow metal was the manufacturing and services PMI report, which missed forecast, raising further concerns over the strength of the economy.
On Monday morning during Asia hours, spot gold jumped to record levels, trading at $1,931.11 per ounce after earlier moving as high as $1,943.92 per ounce. Those levels eclipsed the previous record high price set in September 2011. Gold was trading around $1,932.81 per ounce in the afternoon.
The Fed has kept the benchmark rate at close to zero this year, and talk has centered around whether it should go to negative like its counterparts in Europe and Japan.
Joshua Rotbart, managing partner at precious metals dealer J. Rotbart & Co., also predicted that gold prices will soar beyond $2,000 by the end of the year.
That rush to buy the precious metal is driven by a “fear factor” among investors because of the coronavirus pandemic and the weakening global economy, he told CNBC on Friday. “Investors are nervous, they are afraid, there’s a fear factor and they are rushing to gold.”
Coronavirus cases around the world have shown no signs of abating, with several countries experiencing subsequent waves after appearing to control the outbreak. There are currently more than 16 million reported cases around the world and more than 648,000 people have died globally, according to data compiled by Johns Hopkins University.
“With current conditions of loosening monetary and fiscal policy, global recession, unemployment and governments cannot control this. I think we will see (gold prices) heading over the $2,000 mark,” Rotbart said.
Prices of the precious metal have soared by close to 30% this year.
Last week, it jumped to a nine-year high after European Union leaders reached an agreement to roll out an unprecedented $2 trillion stimulus package. Analysts had said the package is likely to push real rates even lower – seen as a boom for gold.
Gold has gained around 20% so far this year and is at its highest levels in almost a decade, making it one of the best-performing major asset classes of 2020. The surge is primarily due to investors’ search for safe-haven assets.
Notably, gold’s dream run follows an impressive 2019, wherein it gained about 19%, its strongest annual increase since 2010. A weaker U.S. dollar index, technical buying, and increasing consumer demand from China and India have been fueling the bull run of the yellow metal. However, gold price had taken a hit in March as investors sold everything and piled into cash.
Things changed following the coronavirus outbreak as governments across the world unleashed unprecedented fiscal and monetary stimulus and yields started plunging. The ultra-easy monetary policy is another reason for the surging price of gold. The Fed has been acting super-dovish since March. It has cut rates to zero and launched an infinite QE policy. The Fed is also buying highly rated corporate debt as well as fallen angles. Such measures have kept the dollar’s strength in check.
Moreover, real U.S. treasury yields presently are negative from a five-year to 20-year term. This lowers the opportunity cost of holding a non-interest-bearing asset like bullion. The precious metal is also getting a boost from uncertainty around the U.S. presidential election and rising geopolitical conflict around the world that are making investors skeptical and making them go for safe-haven assets.
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