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Gold soars to record high as virus fears lift safe-haven demand

· Gold prices surged to an all-time high on Monday as fears over an economic fallout from rising COVID-19 cases boosted demand for the safe-haven metal, although gains were capped by an uptick in the U.S. dollar.

· Spot gold was steady at $1,973.94 per ounce by 0254 GMT, after hitting a record high of $1,984.66 in early Asian trade.

· U.S. gold futures rose 0.3% to $1,992.30.

· “The sentiment across markets is deteriorating. First of all, rising infection rates are a real concern for the globe and a real support for gold prices. Given that, it is also driving U.S. dollar higher,” said Michael McCarthy, chief strategist at CMC Markets.

· Coronavirus cases continued to surge in the United States and stood at over 17.96 million globally.

· Rising COVID-19 cases and simmering U.S.-China tensions have dented hopes for a swift economic recovery, driving inflows into safe-haven assets such as gold, which climbed 30% so far this year.

· “Gold also saw safe-haven demand as the federal unemployment bonus expired on Friday, which would affect U.S. consumer income and spending and the U.S. Central Bank would thus remain dovish,” Phillip Futures analysts said in a note.

· U.S. lawmakers struggled to hammer out a new stimulus plan. White House Chief of Staff Mark Meadows said on Sunday he was not optimistic on near-term deal for coronavirus relief bill.

· Limiting gold’s advance, the dollar index rose 0.2%, having touched its lowest level since May 2018 in the last session. A weaker dollar, also considered a rival safe haven, makes gold cheaper for holders of others currencies.

· China’s factory activity expanded at the fastest pace in nearly a decade in July, a survey showed.

· Speculators reduced their bullish positions in COMEX gold and silver contracts in the week to July 28.

· Elsewhere, silver eased 0.2% to $24.32 per ounce, platinum fell 0.9% to $899.04 and palladium dropped 1.1% to $2,068.29.

· ING head of commodities strategy Warren Patterson projects weaker U.S. dollar for the rest of the year. “This is one factor which shouldn’t provide too much resistance to potentially higher prices,” he wrote last week.

The drivers are all still there for gold to keep climbing above $2,000 an ounce, Patterson noted, adding that he sees gold ending the year at $2,100 an ounce.

“Clearly the bulk of drivers are telling us that there is further upside to the market, and we believe it is only a matter of time before the market breaks through the US$2,000/oz level,” he said. “We expect prices to face some resistance as it approaches this level like we saw earlier this week.”

· Gold investors cannot forget that a price pullback is expected in the short-term, given how quickly prices have moved up. However, the overall trend in gold remains bullish, Cooper stated on Friday.

“Prices are technically overbought; given how quickly prices have rallied, the risk of a temporary pullback has risen. But the balance of risks remains skewed to the upside for gold in light of the macro backdrop remaining exceptionally favourable; any near-term corrections are likely to be viewed as buying opportunities,” she said.

The biggest risks to the gold price rally are a quick and successful roll-out of the COVID-19 vaccine, swift USD recovery, and profit-taking, Patterson said.

Traders should also watch out for a repeat of what happened in March, which could have a major negative impact on gold, Patterson added.

“While a renewed sell-off in risk assets should provide upside to gold, there is the potential that we see a repeat of March, where a selloff in other asset classes, saw investors liquidating gold positions in order to meet margin calls,” he said.

Reference: CNBC, Kitco