- The price of gold revisits a level it last touched in Q4 2011.
- Investor sentiment is worsening across the globe with the Federal Reserve warning that economic growth is leveling off.
- Currency debasement and fears of inflation are making gold attractive.
Gold’s spot price is headed for a record high after blasting past $1,800. Bullion last breached this level in September 2011–about a month after Standard & Poor’s cut the United States’ AAA credit rating for the first time.
At a price of nearly $1,814, gold is currently 6% shy of its all-time high. That represents a jump of over 2% from Tuesday’s low.
Here are three reasons why the yellow metal is rallying as investor sentiment worsens.
1. Growing concerns over economic recovery
A resurgence in virus cases is raising worries that the U.S. economic recovery will stall prematurely.
Presidents of the Cleveland and Atlanta Federal Reserve Banks have warned that economic growth is slowing.
Atlanta Fed President Raphael Bostic cautioned earlier this week that economic activity is leveling off. According to Bostic, this could make economic recovery “a bit bumpier” for the foreseeable future.
Cleveland Fed President Loretta Mester equally sees economic activity slowing down. She attributed this to the surge in cases across the country.
Wall Street is fretting about the economy, too. Earlier this week, Goldman Sachs projected that the U.S. economy would contract nearly 5% this year.
The World Bank expects global GDP to contract 5.2% this year.
Fears of a slowing economy are forcing investors to hedge their bets with gold. This is especially so as investor sentiment worsens, and warnings of a stock market pullback grow louder.
2. Currency debasement is good for gold
Stimulus measures around the globe are creating the perfect environment for a gold rally.
Across the world, governments are pouring money into economies to stimulate a recovery.
In the U.S., the CARES Act injected $2 trillion into the economy. A further $3 trillion under the HEROES Act is in the pipeline.
Other major economies are planning or have already launched similar measures. Japan’s total spending to combat the economic fallout from the pandemic is now about $2.18 trillion.
Meanwhile, EU leaders will meet later this month to negotiate a $2.07 trillion long-term budget and economic rescue package for the bloc.
3. Gold bulls running rampant
The gold rally is aligning with Wall Street’s expectations. Last month, Goldman Sachs predicted that gold would hit a price of $1,800 within three months. That price target has now been reached.
Goldman expects the yellow metal to hit $1,900 within the next six months and $2,000 in 12 months.
JPMorgan Chase has equally urged investors to stick with gold due to the low yields and elevated risks.
Investors have responded positively to these calls. The latest CFTC data show increasing net bullish bets on gold futures and options for the third week in a row.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.
Last modified: September 23, 2020 2:03 PM