Gold will be one of the big winners of the coronavirus. With the Fed’s quantitative easing program set to “unlimited,” and with the underlying economy struggling, investors will increasingly push the gold price to new highs.
In the near term, UBS Investment Bank has predicted the price of gold will break $1,800 an ounce. Today, it pointed out that gold ETFs have seen the highest quarterly inflows for four years.
Clearly, investors are desperate for a safe haven amid global uncertainty. In their desperation, they’re likely to drive the price of gold to new 2020 highs very soon. Perhaps even all-time highs.
Speaking to CNBC’s Squawk Box Asia, UBS precious metals strategist Joni Teves said the gold rush came from:
…[a] pickup in investor interest, particularly from institutional investors.
Prior to the coronavirus, the price of gold wasn’t so hot. In August 2018, gold demand fell to its lowest level since 2009. The U.S. and global economy had been picking up. Accordingly, investors preferred riskier assets.
Markets witnessed similar lows for the gold price in April 2019. In November, gold suffered its biggest weekly drop in three years. Again, markets were were optimistic about improving U.S.-China trade relations.
How times have changed. Gold has increased by about 11% across the year to date, while the Dow has plummeted by 17.8%. And today, UBS Investment Bank told CNBC that the price of gold is likely to break $1,800 soon.
There is growing potential (for gold) to break $1,800 (per ounce) in my view … investor interest continues to grow in this environment of uncertainty and negative real rates.
Since the Federal Reserve stepped in with “unlimited” QE on March 23, the Dow Jones has risen higher than the price of gold.
Since March 23, the Dow Jones has risen by around 27.6%. By contrast, the price of gold has climbed by 16.5% since its YTD low of $1,473.
However, gold is much less volatile than the stock market. As the full effects of the coronavirus and lockdowns make themselves known, the Dow Jones will risk losing recent gains. Investors who sell stocks will likely rush to gold.
In fact, a gold price of $1,800 per ounce may be a conservative estimate. Assuming that the economic aftershocks of the coronavirus run deeper, some analysts are predicting that the price of gold will break all-time highs.
Speaking to Barron’s in April, Sprott CEO Peter Grosskopf said:
We are close followers of trading and flows in the bullion markets, as well as the underlying technical analysis, most of which point to gold over $2,000 sometime late this year or early next.
Gold currently sits at $1,716 (as of writing). According to Adam Koos, the president of Libertas Wealth Management Group, this puts it in a strong position. He also told Barron’s:
A hold above $1,700 would be very constructive in terms of giving [gold] a boost up to the all-time highs.
Of course, this all depends on what the coronavirus does next. Already, the gold price has broken all-time highs for non-USD currencies.
So if the pandemic in the U.S. gets worse, the price of gold will rise. If the U.S. economy tanks, the price of gold will rise some more.
Indeed, the U.S. economy is already tanking. Goldman Sachs is predicting a 34% fall in GDP in Q2. As dire as this is, Goldman’s estimates up until now have all been too optimistic. So things could end up being even worse than forecast.
If so, gold could very well break all-time highs against the dollar. This is made likelier by quantitative easing and low rates, as well as by disruptions to the gold supply. So it may be time to play it safe.
Disclaimer: The views expressed in this article represent the author’s opinion and should not be considered investment advice from CCN.com.
Last modified: May 4, 2020 12:58 PM UTC