By David Brough
Gold hit a 7-1/2-year high in U.S. dollar terms this week, with opinion divided over whether it could hit a new historic peak later this year.
Many of the ingredients are in place for an eventual rally to a new high, with interest rates around the world at rock bottom and a series of stimulus measures in place due to COVID-19.
However, it is unclear to what extent the impact of COVID-19 on the global economy is priced in.
Gold slipped almost 2 percent to $1,685.84 per ounce on April 17, as President Donald Trump’s moves toward re-opening the U.S. economy encouraged a flight to riskier assets.
Earlier this week, gold hit $1,746.50 per ounce, its highest since November 2012, bolstered by the stimulus measures and a weak U.S. dollar in which gold is denominated.
“Some analysts see price rises ahead in multiples of thousands of dollars. We are not one of these but do see the prospect of good price growth ahead – perhaps to $1,800 by some time in June/July, and a test of the all-time dollar high of over $1,900, ironically by Labor Day, in the U.S. in early September,” wrote Lawrie Williams, gold market commentator with bullion dealer Sharps Pixley.
“The northern hemisphere autumn (fall) can hold mixed fortunes for precious metals, but we wouldn’t be too surprised to see $2,000 gold before the year end.”
Saxo Bank said this week: “Despite the need to consolidate, and with that the risk of another mini correction, our long-term view remains firmly bullish.
“The level of stimulus currently going into the global economy is likely to support gold over the coming years.”
Philip Newman, director of Metals Focus, in a NAJ webinar this week, said he was cautious about prospects for gold to quickly reach all-time highs, as much of the damage to be wreaked by COVID-19 had already been priced in by markets.
The key question for the future trend around the gold price will be the extent of uncertainty that will prevail over the assault by COVID-19 on the global economy.
If equity markets see another major downward correction, the price of gold could rise due to its appeal to investors as a “safe-haven.”
On the other hand, if the global economy picks up quicker than expected after the lockdown, gold may correct lower.
Several analysts are in agreement that gold, in the near term, is likely to continue to act as a relatively resilient asset with strong underlying support not far off current levels.
Disclaimer: Any opinions expressed in this article are solely those of the author and should not be seen as investment advice.