Many say that it was a long way coming. Gold prices have surged to record highs with investors moving to find haven spaces to put their money as fears increase about a resurgence in the coronavirus. Investors are worried that a second wave of the virus may have a negative impact on the global economy.
Gold exploded to reach $1,944 per ounce on July 27 smashing the previous record that was set in 2011. So far, the precious metal has gained around 27% in 2021. Silver also enjoyed a boost surging by over 6% to reach $24.21 an ounce, dwarfing last week’s seven-year high.
The chief global markets strategist at AxiCorp, commented:
“Gold is the clear beneficiary of safe haven demand. And the record run may not be over yet.”
UBS and Citigroup analysts expect that gold will surpass $2,000 by the end of this year. This surge is supported by a weak dollar, low US interest rates, and growing tension between China and the US.
What Is Pushing Gold Higher?
The key driver behind the latest gold rally has been identified as the falling returns on US government bonds. That drop has reflected the likelihood that the Federal Reserve will have to maintain interest rates lower for a longer period to support economic recovery.
Hussein Sayed, the chief market strategist at FXTM, said that the current scenario has served to weaken the US dollar that currently trading at a 22-month low of about 0.85 euros and a 4-month low versus the Japanese yen. Kit Juckes, the chief strategist at Societe Generale, said:
“That’s partly driven by a sense that the US is having a harder time controlling the virus than others, which will see the US economy under-perform.”
There is compelling evidence that suggests America’s fragile economic recovery is now stalling. The number of COVID-19 infections and deaths is spiking. The jobless claims are rising again for the first time in several months and there are fears that the expiration of the country’s $600 boost to the unemployment benefits that are set to end on July 31 may result in another major blow to consumer spending.
Financial Crisis May Arise
Am ex-Obama adviser has warned of a possible repeat of the financial crisis. Austan Goolsbee chaired Obama’s Council of Economic Advisers in the wake of the 2008 financial crisis. He told reporters that the US may be gearing up for another financial meltdown.
The meltdown will happen if the pandemic is not rapidly brought under control. While referring to the forthcoming presidential election, Goolsbee said:
“Whoever is coming in there in January 2021 might be facing worse conditions than in 2009, as hard as that is to believe.”
Europe Is Also Plunging
In other places, sentiment remains fragile after a spike in the COVID cases in Spain. That spike pushed the United Kingdom government to impose a 14-day quarantine on all individuals returning from the country. Investors now worry since restrictions may spread in many other places, in turn, slowing down the economic recovery.
According to Ryanair (RYAAY) CEO Michael O’Leary, the new spike in Spain has already affected flight bookings significantly. Europe’s largest low-cost airline now expects to carry about 60% fewer passengers in the next 12 months ending April 2021 compared with the previous year. O’Leary said on Monday:
“That will be entirely contingent on there being no second wave of Covid-19 in the [fall] and winter.”
In another new report published on July 27, EY economists predict that the United Kingdom GDP will contract by around 11.5% in 2021. That drop is higher than the 8% drop that they were expecting in June. A new coronavirus wave and the failure of post-Brexit trade talks with the European Union would worsen the matters.
Howard Archer, EY’s chief economic adviser, noted:
“The UK economy may be past its low point but it is looking increasingly likely that the climb back is going to be a lot longer than expected.”
All these scenarios are playing out simultaneously which will push more investors towards the haven assets. Thus, many believe that gold will continue with its a strong uptrend that has dominated the market since the start of 2021.