By David Brough
Gold prices have eased as several economies moved to ease lockdown measures, but a dismal global economic backdrop and possible further central bank stimulus will underpin bullion.
Gold dipped 0.77 percent to $1,705.76 per ounce on May 8, pressured by moves to open up some economies, and slightly better than expected jobs data from the United States, which increased the appetite for risk. Equities edged higher.
The overall economic backdrop remains grim, however, following the biggest monthly loss of jobs in the U.S. since the Great Depression, triggered by the coronavirus pandemic, and due to expectations that more central bank stimulus could be coming.
Rock bottom interest rates appear likely to remain in place for some time as COVID-19 batters economies around the world. Lower U.S. rates can weigh on the dollar, increasing the attractiveness to investors of bullion, which bears no yield.
The dire economic climate will highlight gold’s appeal as a safe haven in the longer run, with the coming second-quarter reporting season expected to deliver extremely disappointing results for some companies.
“We do believe that sooner or later the realization will sink in that perhaps the economic fallout from the COVID-19 coronavirus is unlikely to see any signs of recovery for many months at the very least – particularly as the Q2 reporting season approaches,” wrote Lawrie Williams, commentator with bullion dealer Sharps Pixley.
“Surely, gold as a primary safe haven investment will look more and more appealing to the mainstream investor?
“We are already seeing record flows into the easy gold investment option – gold backed ETFs – and sales of small-sized gold bullion coins and bars are picking up.”
Disclaimer: Any opinions expressed in this article are solely those of the author and should not be seen as investment advice.
