There is a possibility that gold prices may ‘break the highs’ set earlier this year. The precious metal had adopted a strong uptrend until March when it crumbled along with assets across the board amid the fears of coronavirus uncertainties and expected impacts on the global economy.
However, UBS Investment Bank’s Joni Teves is convinced that gold will set new highs since it has recovered from the shocks of Coronavirus. He was speaking to “Squawk Box Asia” on May 4 when he said:
“There is growing potential (for gold) to break $1,800 (per ounce) in my view.”
In the short term, UBS says that it has a target price for gold set at $1,790 per ounce. That comes as:
“investor interest continues to grow in this environment of uncertainty and negative real rates.”
As of May 4 afternoon Singapore time, the spot gold price was almost $1,698.61 per ounce approximately 12% increase year to date. The World Gold Council released its Q1 2020 demand trends report last week for gold. In that report, it highlighted that the COVID-19 pandemic was:
“the single biggest factor influencing gold demand. As the scale of the pandemic — and its potential economic impact — started to emerge, investors sought safe-haven assets. Gold ETFs saw the highest quarterly inflows for four years amid global uncertainty and financial market volatility.”
UBS’ Teves said that the move in gold had been driven by a surge in investor interest, especially from the institutional investors.
Gold Attractiveness
Gold is gradually becoming attractive in the current environment since uncertainty is significantly high. Teves said:
“growth is expected to weaken, and at the same time you have negative real rates which make gold attractive to hold as a diversifier in investor portfolios.”
In the meantime, Fat Prophets’ David Lennox told CNBC via email that the “bigger tailwind” for the XAU prices is in the actions of central banks and government.
Governments are spending large to stimulate ‘flagging economies’ that are hit by Covid-19. That has raised concerns over debt in a future that has no virus according to Lennox. Additionally, he said that currencies are also getting driven lower due to central banks cutting rates to stimulate economies. Lennox added:
“Fiat currencies post COVID will not be the place to be invested.”
Lennox talked referring to a government-issued currency that is not supported or backed by a physical commodity.
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