On August 5, 2020, gold topped $2,000 (£1,527) an ounce for the first time and climbed to reach $2,041. Traders are searching for a haven amid the current pandemic and the precious metal is proving quite popular.
Powered by dominant tech stocks, that market keeps surging. However, if gold prices are anything to go by, traders are still hedging their investments against an uncertain economic future. Notably, investors have moved cash into the gold market as COVID-19 cases surge in the US and around the world. More money is also getting pumped into the global economy resulting in increased inflation.
The record price that gold has set us also driven by worries over the brewing tensions between Beijing and Washington. Prices of most of the other precious metals like silver have also surged steeply since the start of this year.
Based on the year-to-date data, the price of gold has gained over 34.5% as the health crisis continues to ravage many parts of the world. Many states in the US have stopped and even reversed their plans to reopen. The sharp increase in cases has dented hopes of a swift US economic recovery. On the contrary, it has helped drive up the prices of spot silver by almost 34% this year.
Investors are preparing themselves for a possible pick-up in inflation as a result of the impact that the trillions of dollars of stimulus from central banks and governments around the world will have on fiat currencies. Hence, they are turning to haven assets to shield their value and the increased demand has supported strong uptrends in these markets.
In the US, President Trump administration negotiators said that they will strive relentlessly to cooperate with Democrats. They are trying to strike a deal on additional economic relief measures by the end of this week. Governments around the world have committed almost $20tn worth of stimulus, according to the Bank of America. The stimulus money is meant to fight the economic effect of the pandemic.
Some investors believe that gold will continue to rise citing the fallout from the Covid-19 crisis coupled with the continuing tensions between China and the US. One market strategist, Margaret Yang, said that bullion has the potential to keep surging in the coming weeks and months. She explained:
“The mid-to-long-term prospect of gold and other precious metals remains bullish against the backdrop of a low interest rate environment and fiscal and monetary stimulus.”
Another analyst, Peter McGuire from XM.com, is convinced that gold can reach “$2,200 by Christmas” with silver, platinum and palladium also set to see strong gains. There is a good reason why gold is still rising. According to Goldman Sachs, the US dollar will weaken another 5% during the coming year as a result of a stronger economic comeback from the health crisis outside the US.
The yields on benchmark government bonds will remain extremely low as the central banks strive to maintain support. Interestingly, the appetite for haven investments is only expected to ramp up as we head into the next phase of the recovery. Experts and analysts say that the road to recovery is expected to be quite rocky. JPMorgan economist Bruce Kasman told clients:
“Our outlook for a robust but still-incomplete recovery reflects the judgment that policymakers have successfully navigated the global economy out of the crisis; but will fall short of meeting the challenges that still lie ahead. Growth momentum will thus fade.”
For now, the bulls are in control of the gold market and they are not ready to back down any time soon. With $2,000 already surpassed, $2,200 is the next psychological level on the list.