Gold has extended its rally with prices reaching their highest level in more than seven years on investor concerns that the Covid-19 pandemic will have a devastating effect on the global economy.
Futures are nearing $1,800 an ounce after trading in the $1,400s less than four weeks ago. Prices are now at their highest level since October 2012. Spot gold was up more than five percent on Tuesday at $1,718 an ounce.
Gold appears to have “solid, big-picture, bullish fundamentals in place as deteriorating economic sentiment globally suggests even larger waves of government support will be seen in China, India, Europe and the US,” analysts at Zaner Metals told the Market Watch.
Bullion’s upswing comes as the novel coronavirus outbreak has spurred central banks and fiscal policymakers to launch huge stimulus packages. Billionaire investor Ray Dalio said this month that gold, along with some stocks, was attractive as central banks print money.
Global holdings in bullion-backed, exchange-traded funds have ballooned to record levels on rising demand, with investors seeking additional portfolio protection. On Monday, volumes in SPDR Gold Shares (the largest such fund) skyrocketed above 1,000 tons to the highest volume since mid-2013.
“Gold’s biggest stumbles during this crisis have been because investors were on a search for cash liquidity to cover losses and margin calls elsewhere, not because their attitude toward gold shifted,” said Christopher Louney, analyst at RBC Capital Markets.
“Even as markets improve, whether temporarily or not, and investors come back, we think gold will also absorb inflows alongside other asset classes. Market participants are aware of the risks out there, and an asset like gold that we have long recommended as a risk overlay stands to receive ongoing support, and we think the firmest support is now at our high scenario,” he added.
Some experts point out that the gold market’s future looks bright at a time of unprecedented uncertainty. “We would expect to see prices over $2,000 by sometime early next year. That is not a surprise, fundamentally either, in the current environment,” Peter Grosskopf, chief executive officer at Sprott, told Kitco.
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