Gold can push to $1,800 by Q2 as pandemic fears continue to grip financial markets - Invesco
(Kitco News) - Investors should look past short-term technical selling and focus on the fact that interest rates will continue to go lower, according to one market analyst.
Kristina Hooper, chief investment strategist at Invesco
Gold prices are struggling to hold support at $1,650 an ounce following Monday’s massive rally to a fresh seven-year high. Despite Tuesday’s selling pressure, Kristina Hooper, chief investment strategist at Invesco, said in a telephone conversation that she expects gold prices will continue to move higher through the second quarter.
The comments come as gold prices fall nearly 2% Tuesday. April gold futures last traded at $1,646.30 an ounce, down 1.80% on the day.
Hooper explained that there is still a lot unknown about the coronavirus. She added that optimism that the global economy could see a quick recovery from the virus is starting to fade and that will support gold as a safe-haven asset.
According to the World Health Organization, the virus has now infected 80,000 people, about 10 times more cases than the SARS virus from 2003.
“This virus continues to surprise investors. More questions about the spread of this virus arise each day and it’s likely that safe-haven assets like gold will continue to be attractive,” she said. “But we know that there is a light at the end of the tunnel, we just don’t know how long the tunnel is.”
Looking at the gold market, she said that she could see prices push to $1,800 an ounce by the second quarter as bond yields continue to push lower. As gold prices have pushed to new multi-year highs, U.S. bond yields have dropped to record lows; Tuesday, the yield on U.S. 10-year yields fell to 1.32%.
Hooper added that she expects bond yields to continue to go lower as she looks for the Federal Reserve to cut interest rates later this year.
“The news flow right now is causing a suspension of what are typically the boundaries surrounding asset classes that we have seen in recent years,” she said.
Hooper said that she expects the Federal Reserve to enact more “insurance” rate cuts as it looks like the U.S. economy has been impacted by the coronavirus. Hooper added that the virus could have a more significant impact than the trade issues had on the economy last year.
Friday preliminary PMI data showed that sentiment in the U.S. service sector contracted for the first time in more than six years.
“The service sector is a much bigger portion of GDP than manufacturing. I think the Federal Reserve won’t hesitate to react if the sector continues to slow,” she said. “Remember this is the same Fed that cut rates three times last year to support the economy.”
Although gold prices have room to move significantly higher in the next few months, Hooper said that she doesn’t know how long the rally will last. She said that he is still holding to her forecast for gold prices to end the year above $1,600 an ounce.
“There are a lot of fundamental factors supporting gold prices in the long term,” she said. “But right now, we are seeing a lot of panic money coming into gold and that doesn’t tend to last.”