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Gold eyes $1800 mark on fears of trade war, second virus wave

Issac John /Dubai
issacjohn@khaleejtimes.com Filed on May 17, 2020 | Last updated on May 18, 2020 at 01.06 am
Gold price, Dubai, uae gold,  US, china, trade coronavirus

(Photo: Shihab/KT)

The anticipation of further fiscal and monetary measures will likely fuel further demand for precious metals, as they have in the past.

Panic stoked by fears of re-escalation of US-China trade combined with concerns about the global economic health, and central banks stimulus programs to aid the battered economies have propelled gold to a wave high of above $1750 per ounce, pivoting it for a historic surge to the 1,800 mark within months.

UBS raised its gold price forecast to $1,800 an ounce after the Fed announced that it will expand existing credit support measures.

"The two most important determinants of the gold price are real US interest rates and expectations for the purchasing power of the dollar, both inverse relationships, and we reiterate our negative views on both at this point," said analysts Wayne Gordon and Giovanni Staunovo.

RBC Capital Markets commodity strategist Christopher Louney has updated gold price in the high scenario --- from $1,614 per ounce to $1,788 per ounce in 2020 and from $1,700 to $1,893 in 2021. "The high scenario assumes a far slower than expected recovery and perhaps a deeper economic stumble, of which there is certainly a non-zero chance in our view. We are not prepared to call for this in our base case given what we know so far," Louney noted.

A major element working in favor of gold is the global monetary and fiscal action. "The same policies that are meant to stimulate economic growth are simultaneously stimulating gold too, but from a different angle," he said.

RBC pointed out that gold can continue to make gains even as equities improve with investors still seeking the safety of gold as they come back to the stock market. "We see elevated gold prices through the end of this year and spilling over into much of 2021 as well," Louney said.

Other experts are also bullish that the yellow metal could rally to $1,900 an ounce this year, back to its high reached in 2011, if gold has already found its crisis-bottom.

The yellow metal's relentless rally over the past few days has also been abetted by fears over a second wave of Covid-19 outbreak as global economies begin to reopen.

The grim possibility of another surge in pandemic cases, combined with weak economic data coming from major markets like the US, raises more uncertainties for a near-term recovery, making safe-haven assets like gold more attractive to investors, precious metal analysts said.

"Gold has been showing a rising tendency so we believe that similar market segments were very popular in the given time frame," said analysts at Gov Capital. As of Sunday, price of gold is $1754.100 per ounce.

Gold futures for June delivery traded 1.1 per cent higher at $1,759.50 an ounce on the Comex in New York.

The anticipation of further fiscal and monetary measures will likely fuel further demand for precious metals, as they have in the past.

"Everybody must have realized it, but it's just more evidence that the reality is this is a pretty bleak economic picture right now," Phil Streible, chief market strategist for Blue Line Futures LLC, said. 

"People are continuing to pile into gold because that weak economic picture is going to continue to drive interest rates lower," he said.

Prices are having a long-awaited breakout moment as market anxiety mounts, analysts said.

Issacjohn@khaleejtimes.com

 

author

Issac John

Editorial Director of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.


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