The dollar index fell to its lowest level in nearly two years with negative US real interest rates and a bet that the Fed will keep its policy loose when it meets this week. This year, the inflow of gold backed exchange traded funds (ETFs) has exceeded the record set in 2009, with total positions of more than 3300 tons, a record high.
Analysts said gold would very easily break the $2000 mark. Gold futures set a record settlement price, the biggest weekly gain since early April, and calls for gold to hit an unprecedented high of $2000 an ounce have been louder than ever before.
(monthly chart of spot gold)
This leads to the rare possibility of inflation, or even a rise in fixed income. In the United States, investors expectations of the bond markets inflation rate over the next decade (as measured by the bond markets breakeven inflation rate) have risen in the past four months, following the plunge in March. Spot gold hit an intraday high of $1920.88 on Monday (July 27), the highest since September 2011.
The U.S. bond market has always been a key indicator to focus on and the driving force behind the gold boom - gold has become an attractive hedging tool as US Treasury yields, excluding inflation, have fallen below zero. Traders are once again focusing on record low yields as hopes for a vigorous recovery in US growth have dimmed, adding to expectations that the Fed will release a signal of future overweight easing.
Investors are bound to get guidance from the Fed this week, which will meet from July 28 to July 29. Fed chairman Colin Powell and his colleagues are expected to keep interest rates near zero, reiterating the guidance that they will remain so until the economy is free of the pandemic and back on track.
Most analysts are still bullish on gold. Goldman Sachs said gold could reach $2000 in the next 12 months, and Citigroup believes there is a 30% chance that the price will break through that level by the end of this year.
Gold will very easily break the $2000 mark
Investing.com Barani Krishnan, a senior commodities analyst, said there were many push-pull factors against the backdrop of golds rise. After the introduction of the $750 billion epidemic relief plan by the European Union, the world has expectations of stimulating the economy, while the US Congress plans to invest another $1 trillion, or launch some policies before the beginning of August.
The US dollar is also continuing to depreciate, pushing the precious metals higher, despite the stagnation of the US economy. Meanwhile, silver prices have recently risen to their highest settlement price since 2013. The September silver siu20 futures contract reached a peak of $23.14 last week, up 15.6% in total.
Usually, the summer is a downturn for gold, but not this year, said CEO Ross Norman of metals daily, a provider of precious metals news and information In his report to the London Bullion Market Association in December 2019, he predicted that gold prices would reach an all-time high in 2020.
Adrian ash, head of research at bullionvault, said gold prices have risen about 50% since bottoming out at $1200 an ounce in the summer of 2018, the fastest two-year increase since new year 2012.
The new crown epidemic reduced gold production and supported gold prices
When interest rates fall to zero or lower, gold becomes an attractive medium because there is no need to worry about not earning interest and gold prices usually go up when market uncertainty increases, according to maples, co-founder of Mobius Capital Partners. If I had, I would have bought gold now and would continue to buy it, because the gold market is booming and its doing quite well.
Investors find themselves at a strange moment when buying stocks and gold is seen as a way to preserve and avoid inflation. Now its a very interesting situation. People are looking for stocks to keep their value, because stocks will adapt to inflation, and so will gold.
The low and negative interest rates prevalent around the world, including in Europe, have reduced the opportunity cost of holding gold, providing further momentum for growth, Mr. maples said. A reduction in the supply of physical gold to miners who are coping with the virus outbreak may also further push up metal prices in the past. Be wary of a short-term correction in gold prices, however, analysts warn that a correction may soon occur. COMEX options are about to expire, and in price options become futures contracts that require cash margin, which may make traders take profits. At the same time, the stock market looks disconnected from the real economy, and the sell-off may receive margin calls again, as it did in the first quarter, prompting traders to sell gold to make up for the margin. Source: huitong.com editor in charge: Yang Qian_ NF4425
Watch out for short-term correction of gold price
Still, analysts warn that a correction in gold prices is likely to occur soon. COMEX options are about to expire, and in price options become futures contracts that require cash margin, which may make traders take profits. At the same time, the stock market looks disconnected from the real economy, and the sell-off may receive margin calls again, as it did in the first quarter, prompting traders to sell gold to make up for the margin.