COMMENTARY – Recessionary realization to boost gold

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By David Brough

The realization that a global downturn is biting economies hard, will likely drive “safe-haven” gold buying and bring $1,800 an ounce into sight.

Gold traded at $1,743.10 per ounce late on June 19, up 1.09 percent, not far off the highest levels seen since November 2012.

Continuing vast central bank stimulus around the world is set to underpin gold.

The yellow metal has benefited from “safe-haven” buying due to the huge geo-political uncertainty triggered by the coronavirus pandemic.

The resilience of stock markets has surprised many analysts, but expectations of an avalanche of dismal second-quarter (Q2) earnings results could help instil a widespread “wake-up call” that a brutal and prolonged economic crisis is taking grip.

“Spot gold has yet to close above $1,750, and if and when that happens, we suspect renewed momentum and fresh buying from underinvested hedge funds will propel the price higher towards $1,800,” Saxo Bank wrote in a note.

Sharps Pixley precious metals commentator Lawrie Williams wrote: “Forays above $1,750 are quickly put down and recently gold has seen occasional tops in the $1,740s that trigger extensive selling in the futures markets to bring it back down again.

“Sooner or later one of the two current extremes will be breached conclusively and we would suspect that will be to the upside – particularly when the true recessionary economic realization hits the markets which it will do once the Q2 figures start to come out.”

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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