Gold eases off multi-year peak as virus surge drives cash hunt
· Gold edged lower on Thursday, easing off a near eight-year high hit in the last session, as a selloff in equity markets driven by a surge in coronavirus cases prompted some investors to dump assets.
· Spot gold was down 0.1% at $1,760.39 per ounce as of 0307 GMT, having soared to its highest level since October 2012 of $1,779.06 on Wednesday.
U.S. gold futures fell 0.2% to $1,771.80.
· “The behavioural pattern we’ve seen this year is that when stocks and energy fall, there is a rush for cash across all asset classes, including gold,” said Jeffrey Halley, senior market analyst at OANDA.
However, he added, “any short-term correction is likely to be a slow grind lower, and not a rush for the exit doors,” as safe haven buying and low interest rates provide support for bullion.
· Indicative of gold’s overall appeal, which has driven a 16% jump in prices this year, holdings of the world’s biggest gold-backed exchanged traded fund, the SPDR Gold Trust, hit their highest in over seven years.
· Asian stock markets fell on surging U.S. coronavirus cases and an International Monetary Fund downgrade to economic projections, driving inflows into alternate safe haven dollar.
· Gold has, on occasion, moved in tandem with equity markets this year, with steep selloffs driving a rush for cash and as traders met margin calls.
· Three U.S. states reported record increases in new cases on Wednesday.
There has been a rise in cases elsewhere as well, including Brazil, Latin America and India, which is also the world’s second biggest bullion consumer.
· On the physical side, jewelry consumption is likely to remain modest, “limiting the scope for further increases in prices,” said National Australia Bank economist John Sharma.
· Goldman hikes gold price forecast on debasement fears and a weaker dollar
Despite struggling for direction since its sharp gains at the height of the coronavirus crisis, Goldman Sachs analysts are backing gold to rally further on the back of debasement fears and a weakening dollar.
Goldman Sachs updated its three-, six- and 12-month gold price forecasts to $1800/1900/2000/toz from $1600/1650/1800/toz and maintained its long December 2020 gold trading recommendation.
Goldman analysts attributed the recent indecision to a conflict between the negative “wealth” shock to emerging market consumers and a positive “fear-driven” investment demand in developed markets.
In April and May, India’s gold imports plunged by 99% while Russia’s central bank ceased buying gold after the recent collapse in oil prices, triggered by disagreements between OPEC+ and its allies over supply cuts.
Meanwhile, year-to-date gold coin demand is up 30%, total weight of gold in ETFs (exchange-traded funds) is up 20% year-on-year and there is a large amount of latent gold demand, Goldman’s commodities researchers Jeff Currie, Mikhail Sprogis and Daniel Sharp highlighted.
Long-term tailwinds, short term headwinds
Gold’s inability to gain traction could also be attributed to the bullion market tiring of its correlation to “risk-on, risk-off” sentiment volatility, according to HSBC Chief Precious Metals Analyst James Steele.
While gold may dip in the near term, HSBC sees these overriding themes providing support for gold prices, especially since the global recovery is rife with potential pitfalls. Analysts suggested, for instance, that a rise in unemployment when the U.S. government’s Paycheck Protection Program and historic fiscal stimulus package expire could trigger a broad move to gold.
· Palladium jumped 0.8% to $1,878.45 per ounce, platinum gained 0.1% to $800.29 and silver rose 0.2% at $17.55.
Reference: CNBC
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