COMMENTARY – Coronavirus knocks gold supply/demand fundamentals

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By David Brough

The coronavirus pandemic has knocked physical gold demand and supply, but the bullion price, which fell last week, will likely continue to see “safe-haven” investor flows supporting prices.

The severe impact of the novel coronavirus on China and India, the world’s two biggest gold consumers, is expected to contribute to less demand for gold for jewellery and industrial applications, while mine production cutbacks will hit gold supply.

 

COMMENTARY – Coronavirus knocks gold supply/demand fundamentals

 

Gold prices fell last week to below the recent key support level of $1,700 per ounce, pressured by easing lockdown restrictions in some countries.

However, fears of another selloff in equities due to re-ignited trade tensions between the U.S. and China, after President Trump threatened to impose new tariffs on the world’s second biggest economy, could send investors in a flight to safety in gold.

This trend may be compounded by expectations of further weak economic data and monetary easing due to the impact of the pandemic.

The World Gold Council (WGC) revealed huge net inflows of 298 tonnes into gold-backed ETFs in the first quarter of 2020, underlining the safe-haven appeal of the yellow metal.

“The global COVID-19 pandemic fuelled safe-haven investment demand for gold, offsetting marked weakness in consumer-focused sectors of the market,” the WGC’s first-quarter Gold Demand Trends report said.

“As the scale of the pandemic – and its potential economic impact – started to emerge, investors sought safe-haven assets.”

If gold can recover and maintain the $1,700 level as a true bottom, this could be seen as a consolidation point from which it may well be poised to move onwards and upwards, wrote Lawrie Williams, commentator for bullion dealer Sharps Pixley.

If not, gold could yet fall back to the $1,650s or lower for the time being.

Williams added: “While pro-gold sentiment and momentum may well counterbalance any weakness in supply/demand fundamentals, these latter will have an adverse impact on the overall price performance.

“We remain believers that the gold price could hit $1,800 at some time in the second half of the year.”

Disclaimer: Any opinions expressed in this article are solely those of the author and should not be seen as investment advice.

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