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Coronavirus impact: Gold eyes $1,900, but will it shine enough to hit $4,000?

Waheed Abbas/Dubai
Filed on May 3, 2020 | Last updated on May 3, 2020 at 06.41 am
Gold prices are up about 33 per cent over the past year.

(Photo: Shihab/KT)

Market could potentially slip to $1,650 before it can go higher.

Gold's near-term outlook is bullish and it may hit $1,900 per ounce as negative interest rates, unprecedented government stimulus packages globally and its role as a hedge against central banks' monetisation of financial markets will help the yellow metal maintain an upward trend.

Analysts and latest data indicated that the precious metal has an upside potential to surge from $1,700 to $1,900 in the near future, while the lower-end support is seen at $1,450-$1,375.

"For now, we maintain a bullish outlook and may see the market stabilise because of exuberance in the stock market. We may have to be a little bit patient and see the market potentially slipping to $1,650 before it can go higher," said Ole Hansen, head of commodity strategy at Saxo Bank.

Central banks around the world have slashed interest rates and announced trillions of dollars in stimulus packages to support economies against Covid-19. Financial markets have also recovered somewhat of their losses after hitting record lows.

Gold prices on Friday closed 0.7 per cent or $11.66 an ounce higher at $1,700.40. The price is up by 3.88 per cent in the past month, 12 per cent in the past six and 33 per cent over the last year.

According to Saxo Bank, the yellow metal had gained over 180 per cent in the three years after 2008 financial crisis. Hansen, however, didn't rule fully out a similar leap in gold prices over the next three years.

"I am not calling that gold is going to $4,000 but giving simple comparison with 2008 when quantitative easing kicked in, gold had rallied 182 per cent the following three years. If it repeats this time again, we can go to $4,000-plus in the next three years. That is a tall order but we have seen over 180 per cent moves earlier following a major interventions by central banks. So it is obvious, we cannot rule it out completely. In short, $1,800 or $1,900 an ounce will be the next key level," said Hansen.

"However, gold's narrative has not changed much. We're in for a gloomy run of economic data over the next few months and central banks will continue to ease, including the US Federal Reserve, which opens up gold to go higher," said Stephen Innes, chief market strategist at financial services firm AxiCorp.

Hansen noted that hedge funds will also get involved into the gold market once the market sees a new high.

World Gold Council data showed that the central banks continued to amass gold in the first quarter of 2020, although it expected net buying to slow sharply. Amid heightened volatility and uncertainty, global gold reserves grew by 145 tonnes in the first quarter. Gold exchange-traded funds (ETFs) saw the highest quarterly inflows for four years amid global uncertainty and financial market volatility. Holdings of these products reached a record high of 3,185 tonnes by the end of the first quarter.

In addition, the rise in gold prices over the last couple of days was also prompted by US president Donald Trump's threat to impose new tariffs on China.

"We saw some weakness in the US equities markets... it seemed Trump was hinting at a resurgence of the trade war," said Phil Streible, chief market strategist at Blue Line Futures.

"That being said, a lot of investors liquidated various asset classes that might be affected by that and went back into safety, specifically gold," he added.


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