Gold price pushes above $1,700 as equities, oil market collapse
(Kitco News) - Safe-haven demand continues to grow with gold prices push above $1,700 as investors fleeing equity and oil markets at the start of the trading week.
The gold market appears to be the only asset in positive territory, up 1.5% as S&P 500 futures are down 4.5% Sunday evening in North America. Meanwhile, oil futures are seeing their worst selloff since 1991. West Texas Intermediate Crude (WTI) oil prices are starting the week down nearly 26%.
According to analysts, recession fears continue to build as the world reacts to the growing spread of the coronavirus. Not only is the oil market suffering from expected weak demand in a slowing global economy, but a price war is looming after OPEC nations and Russia were unable to agree on production cuts. In response to the breakdown in talks, Saudi Arabia slashed its official selling price and announced plans to raise crude production significantly.
As markets start the week on a terrible footing, analysts are warning that the situation can continue to deteriorate.
With the virus now spreading to 90 countries, Marc Chandler, managing director at Bannockburn Global Forex, warned: "The containment of the coronavirus has failed."
"The precise economic impact may be unknown… but policymakers and investors do not need such precision. The direction of the shock is clear. The magnitude is less known, but a cursory look suggests the near-term economic impact is likely more moderate to severe rather than minor," he said in a report Sunday," Chandler said.
In a recent interview with Kitco News, Paul Robinson, managing director at CRU, said that he expects that gold will be the asset to own in the near-term as markets are still a few weeks away from full-on panic. He explained that European and North American markets still don't fully understand how the virus will impact economic growth.
As bullish as Robinson is on gold, he is just as bearish on energy commodities. He explained that the coronavirus is creating massive demand destruction in oil and natural gas markets.
Ole Hansen, head of commodity strategy at Saxo Bank, also said he doesn't think that markets haven't seen the low point market panic. He added that because gold’s upward momentum is so strong no one can predict how high prices will go.
"I think you just have to be bullish," he said.
Along with safe-haven demand, gold prices are also benefiting from fresh historic lows in U.S. bond yields. Sunday evening, the yield on U.S. 10-year treasuries briefly fell below 0.5%.
In a report, Sunday, Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that the low bond yield and falling equity markets could signal even lower prices for energy commodities and base metals.
"It's not that profound to expect commodities to keep falling until the stock market shows clears signs of a sustained recovery, in our view. Key deflationary brethren -- plunging bond yields and the strong dollar -- indicate the commodity bear is simply emerging from hibernation," he said in the report.
Friday, McGlone said that he could see gold prices pushing to $1,800 an ounce because of rising bond prices, which are the inverse to yields.
Rich Dvorak, an analyst at DailFX.com, said that collapsing bond yields could eventually push gold prices back to their all-time highs above $1,900 an ounce.