US stimulus hopes, weak dollar to trigger gold rally

A weaker dollar, concerns over rising cases of coronavirus, low-interest-rate environment and new US fiscal stimulus package will drive gold prices to $2,000 an ounce level by the end of the year and $2,100 an ounce during first quarter 2021.

Standard Chartered precious metals analyst Suki Cooper said overall, most of the drivers remain supportive of higher gold prices into the next year.

“Negative real rates, expectations of a weaker dollar and stimulus packages continue to paint a favourable backdrop for gold, but lighter positioning suggests caution ahead of the election,” she said.

The physical market has been weak ahead of the US election, with the third quarter likely turning out to be the weakest quarter for central bank gold buying in 10 years, according to Cooper.

“The physical market usually offers a buffer on the downside when disinvestment accelerates, such as during 2013. The absence of strong physical demand could add to market volatility around the election,” Standard Chartered analyst said.

At present, even though the macro environment remains very supportive of higher gold prices, the precious metal is stuck at the $1,900 an ounce level, Cooper said.

Australia and New Zealand Banking Group (ANZ sees the precious metal surging to $2,200 by the end of the year and advancing to $2,300 by early 2021 spurred by US fiscal stimulus package.

"Approval of a US relief package will be the trigger for price upside," ANZ's commodity strategists Daniel Hynes and Soni Kumari wrote in a commodity report.

ANZ's forecast for the precious metal sees gold rising to $2,200 by the end of the year and then climbing further to $2,300 by early next year.

International bullion prices gained in early Asia trade on Tuesday, supported by a weaker dollar and concerns stemming from the surging coronavirus spread globally and its economic fallout.

Technically, London Bullion Market Association (LBMA) Gold Spot respected a resistance near $1,914 where it touched the low $1,891 levels, indicating a sideways momentum in a range of $1,888-$1,915 levels.

Refinitiv Metals Research said while demand for gold from jewellers and central banks would remain sharply lower in 2021 than before coronavirus, investors will keep prices high by stockpiling record amounts of bullion,

Gold prices were near record highs after surging to $2,072.50 an ounce in August as investors in Europe and North America hoarded an asset they thought would hold its value through the pandemic.

But those high prices, along with coronavirus lockdowns, have cause a crash in sales of jewellery in Asia, previously the biggest driver of the bullion market.

Jewellery demand will fall 31 per cent to 1,327 tonnes this year before rising 9.0 per cent to 1,447 tonnes in 2021, Refinitiv Metals Research director Cameron Alexander said.

Central bank purchases will plunge by half to 312 tonnes this year and recover slightly to 385 tonnes next year, Alexander said.

Investors will continue to plug the demand gap, with exchange traded funds (ETFs), which store metal for investors, stockpiling 1,205 tonnes this year, three times the amount in 2019, and another 1,362 tonnes in 2021, the most ever.

— issacjohn@khaleejtimes.com