Gold is shooting up, it is right on the cusp of challenging the $1,800 an ounce mark which has been hard to crack. With a resurgence in coronavirus cases, the demand for safe haven assets has risen, which is paving the yellow metal’s way to its record price.
Anthony Fauci, the top infectious-disease doctor in the US warned on Tuesday that he’s seeing a “disturbing surge” in COVID-19 cases. The newly diagnosed cases have state officials considering reversing the reopening plans which are slowing the economic recovery.
New All-Time Highs for Gold
Gold has jumped this year as the Federal Reserve lowered interest rates while pumping in trillions of dollars in stimulus to help recover the US economy ravaged by the pandemic. The concerns of currency debasement and a potential rise in inflation have investors turning to bullion as a store of wealth.
Goldman Sachs Group forecast that gold will hit a record of $2,000 in 12 months.
“The rise in Covid-19 cases has been at the heart of the recent uptick in gold futures,” said Vivek Dhar, an analyst at Commonwealth Bank of Australia.
“A sustained decline in U.S. 10-year real yields will provide support for gold futures. That is because as yields fall, gold looks more attractive relative to interest-bearing securities.”
While the spot gold is testing an eight-year high at $1,767.93, Gold futures had their highest finish in about 10 weeks.
Holdings in gold-backed exchange-traded funds have also soared to a record, increasing 600 tons this year as investors continue to be drawn to traditional haven.
Gold miners are also benefiting from this rally, the world’s largest gold company Newmont Corp.’s shares are up 36% this year while Australian producer Evolution Mining Ltd. has spiked 48%.
All that is Driving the Metal
These gains in gold are not only driven by the investors clearly watching infections pick up across the world which is boosting demand for the precious metal as a safe haven but also on the weakened US dollar.
Since hitting 102.7 the US dollar index which tracks the greenback against a basket of global currencies has been on a constant decline hitting 95.9 on June 10th. Currently, it is around 96.8.
Investors’ appetite for the metal remains high despite the ongoing recovery in the US stock market. It is because the scenario is still uncertain and corrections expected by many still, have traders jumping into gold as a hedging asset. Edward Moya, senior market analyst at Oanda said,
“Trade tensions, second wave concerns, the 10-year real yields (TIPS) decline deeper into negative territory, and taper tantrum risks will continue to support bullish calls to reach $1,800 in the short-term and eventually record-high territory later this year.”
We are entering the third quarter of 2020 – that's the #gold season. Q2 historically is the worst (since 1988), with Q4 also on the light side. All the heavy lifting is done in Q1 and Q3. And Q3 is the strongest. pic.twitter.com/wlbE1L6c6H
— Charlie Morris (@AtlasPulse) June 24, 2020
All these drivers — low-interest rates, US-China tension, a weakening U.S. dollar, and monetary stimulus from global central banks — are also the factors helping raise the appeal of digital gold – bitcoin.
But while bitcoin has doubled since March lows and is up 30% YTD and gold has only risen 17% YTD, this month bullion is the one printing gains of 2.2% while the leading digital currency is ranging and flat this month, failing to make it above $10,000.