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Gold expected to remain healthy as virus spreads

Kitco News

(Kitco News) - Gold is one of the few markets that has been mostly healthy lately as the coronavirus infects so-called risk assets like stocks, crude oil, industrial metals and now even the heretofore safe-haven U.S. dollar.

Traders have been flocking to the precious metal as a safe haven, particularly after the Federal Reserve and several other central banks this week cut interest rates in an attempt to dull the economic damage. And participants in the weekly Kitco News gold survey look for gold to benefit again next week as the uncertainty continues.

“Gold bears better not fight the Fed and global central banks,” said Phil Flynn, senior market analyst with Price Futures Group. “Fear and a weaker dollar should keep gold on a very solid upward track.”

Thirteen market professionals took part in the Wall Street survey. Twelve, or 92%, called for gold to rise. No respondent said lower, while one, or 8%, called for sideways prices.

Meanwhile, 1,919 votes were cast in an online Main Street poll, which is the most in two and one-half years. A total of 1,395 voters, or 73%, looked for gold to rise in the next week. Another 284, or 15%, said lower, while 240, or 13%, were neutral.

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Main Street

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In last week's survey for the trading week now winding down, the largest voting blocs on both Wall Street and Main Street were bullish. As of late Friday morning, they were right, even after gold gave up early-session gains on apparent profit-taking as equities pared early losses. Just before 11 a.m. EST, Comex April gold was up by 5.4% for the week so far to $1,651.70 an ounce.

“I think it’s going to be higher for the obvious reason,” said Bob Haberkorn, senior commodities broker with RJO Futures, referring to the coronavirus. “With the Treasury yields collapsing like they are right now, gold does look like the better safe haven than U.S. Treasuries at this point. The 10-year yields is down around 0.67% [as of when he spoke], which is uncharted territory. If gold isn’t going to rally through this, it never will.”

Richard Baker, editor of the Eureka Miner’s Report, commented that current conditions create a “nearly perfect environment for further rallies in gold,” listing a $1,700 target for next week.

“Plummeting Treasury yields and further anticipated Fed actions have weakened the dollar to January 2019 levels -- a real boost to dollarized commodities,” Baker said. “Very low inflation expectations have fallen less rapidly than 10-year yields, resulting in negative real rates exceeding 50 basis points -- a windfall for a non-interest earning asset like gold.”

Jim Wyckoff, senior technical analyst with Kitco, also said he look for gold to keep rising on more safe-haven demand. “Technicals are fully bullish, too,” he added.

Kevin Grady, president of Phoenix Futures and Options LLC, said he remains bullish on gold for next week.

“We continue to see the number of coronavirus cases increase outside of China,” he said. “The markets are in full panic mode right now. I think that until the number of cases level off, we will continue to see a strong bid in gold.

“That being said, the strong February [U.S.] jobs number coupled with the record number of refinances and new mortgages, due to record-low interest rates, will cause a violent snapback in both equity and metals markets once we see the number of cases subside.”

Sean Lusk, co-director of commercial hedging with Walsh Trading, expressed similar sentiment, noting that investors are now rushing into gold on a flight to safety, but this will reverse direction whenever stocks recover, bonds stabilize, and of course “everything changes” if scientists come up with a coronavirus vaccination.

“It will depend on the stock market, but I don’t see gold stopping here,” Lusk said. Should April gold break through a double-top around the $1,691 area, the market could be headed to $1,750, he added.

“I am expecting continued haven buying,” said George Gero, managing director with RBC Wealth Management. “These problems are never over in one day. I think there will be less of an upward move [than this week’s 5.4% rise], but support for gold.”

Charlie Nedoss, senior market strategist with LaSalle Futures Group, projected April gold could rise as high as $1,736 an ounce, based on a developing but “sloppy” head-and-shoulders pattern. “I’m looking for some follow-through here,” he added.

Meanwhile, Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, said gold is due for a breather after running uphill so quickly.

“Gold needs a pause, so we shall say unchanged,” Day said. “The global monetary situation favors gold, but positive U.S. economic news and any pause on the relentless news on coronavirus could see gold at least stabilize. We remain bullish fundamentally.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.