Gold prices eyeing $2,000 mark; time to buy?
Lingering Covid uncertainty, its spillover effects to dictate tempo
Gold prices will stay high in the next six to 12 months and could rally up to $2,000 an ounce due to uncertainty surrounding the global economy, growing coronavirus cases in key markets and disputes among global players, according to analysts and jewellers in Dubai.
The yellow metal, which posted a seventh-straight quarterly gain in the second quarter of 2020, was trading at $1,808.75 per ounce by 1502GMT. The metal is up 4.1 per cent in the past 30 days, 16.6 per cent in the past six months and 27.6 per cent in the past year.
"Gold prices have been rallying since the last quarter of 2018, and since then it has been recording gains for each quarter. Given the momentum, I think it is highly likely that gold may continue its momentous run for another few quarters, especially this third quarter. The percentage gain for this quarter is very much dependent on the Covid-19 situation," said NaeemAslam, chief market analyst at AVA Trade.
Since shutdowns will limit recovery with no realistic expectation that vaccine will be available before 2021, Aslam believes that the pandemic will worsen the complex situation.
"This means that there are higher chances of strong percentage gains for the gold price not only in Q3, but also in Q4," he added.
Goldman Sachs also projected that gold will reach $2,000 in the next 12 months. The US bank raised its three-, six- and 12-month estimates to $1,800, $1,900 and $2,000 per ounce from $1,600, $1,650 and 1,800 per ounce, respectively.
"For gold prices to go materially above $2,000, we believe inflation will need to move above the Federal Reserve's two per cent target and this move to be met with a muted policy response," it said.
"Gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates. Simultaneously, we see a material comeback from [emerging market] consumer demand boosted by easing of lockdowns and a weaker dollar," wrote analysts at Goldman Sachs.
Abdul Salam KP, group executive director of Malabar Gold & Diamonds, also believes that the yellow metal will maintain the upward trend in the coming few quarters.
"The moment gold touched $1,810 an ounce, the expectation was that it will hit $1,900 by end of the year and will reach $2,000 by next year. The stock market and global economy are volatile and reeling under Covid-19 while physical demand is also there for gold which will lift the prices," said Abdul Salam.
Chandu Siroya, owner of Siroya Jewellers, says gold will remain strong until all the uncertainties around the word such as vaccine for Covid-19, the US-China economic dispute and the China-India border issue will be resolved.
"Gold reaching $2,000 is quite possible. In the short term, if someone is speculating, he can lose money. To invest is a good idea, but to speculate is not. The US dollar is also a big player in the movement of gold's price," he added.
World Gold Council data showed that gold-backed exchange-traded funds (ETFs) added 104 tonnes in June worth $5.6 billion, taking global holdings to an all-time high of 3,621 tonnes in the first half of 2020.
"ETF holdings of gold are up 39 per cent year-on-year as of mid-July and a recent push toward and above $1,800 may prompt the last gold sceptics to throw in the towel and buy into the metal," said Edward Bell, senior director for market economics at Emirates NBD Research.
"Gold prices are not far off their peak level of $1,900 hit in September 2011 and we expect that prices can be sustained around their current levels or higher at least until the end of the year," said Bell.
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