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Gold price will remain volatile until the coronavirus crisis peaks - WGC

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(Kitco News) - Gold prices are seeing some strong gains Monday as the market reacts to the Federal Reserve ’s unlimited quantitative easing plan; however, one market analyst warns that despite gold ’s performance the market will continue to remain volatile.

In a telephone interview with Kitco News, Juan Carlos Artigas, director of investment research at the World Gold Council (WGC), said that gold prices will remain sensitive to market volatility as economists still don ’t know the full impact the spreading coronavirus will have on the global economy.

“All this government and central bank money will have an impact on fiat currencies,” he said. “But for now gold prices may remain volatile as there is still a lot of information that remains unknown.”

The comments come as gold prices rally 5.65% on the session following the Federal Reserve ’s latest emergency announcement. April gold futures last traded at $1,568.5.70 an ounce.

The gold market does have a lot of ground to make up. The precious metal ’s recent performance -- declining 15% from a seven-year high because of market volatility -- has disappointed some investors. But Artigas said that the yellow metal is playing its part as a liquid, safe-haven asset.

Although gold prices have fallen to unchanged on the year, it has still outperformed most other asset classes, Artigas noted. The only assets gold hasn ’t outperformed is the U.S. dollar and U.S. Treasuries.

“Gold has played an important role in portfolios as a source of liquidity and collateral. And we expect it will serve as a safe haven in the longer term,” he said.

Artigas also noted that it is also important to highlight gold’s role in the global marketplace. As of last Thursday, gold prices were down 1.1% against the U.S. dollar but it was up more than 2% on the year against the euro. Meanwhile, against the British pound, gold prices were up 11.5%.

Although gold has struggled since hitting a seven-year high at the start of the month, Artigas said that investment demand remains strong. He noted that global gold-backed exchange-traded products have seen inflows of more than 57 tons with most of the demand coming from Europe while North America saw outflows of 4.3 tons.

“Gold continues to establish itself as an important global asset,” he said.

Another factor that Artigas is watching to gauge investment demand for gold is the growing interest in physical bars and coins. Physical gold demand has picked up sharply in the last few weeks and it comes as some mints and refiners recently announced forced shutdowns because of coronavirus.

“The volatility we are seeing in the gold market doesn’t necessarily reflect the true market demand,” he said. “It is going to take some time to see the true demand for gold. The reality is, in this environment you have high risks and uncertainty and basically no opportunity costs to hold gold. This environment should be in the longer-term support for gold prices.”

However, gold’s ultimate role in financial markets is still to be determined as the world has seen unprecedented moves by central banks and governments to shore up their economies to try and limit the impact of the spreading pandemic.

“Gold can serve an important role in people’s portfolios especially when fiat currencies are all going to be under pressure,” he said. “Once things start to stabilize, you will start to see more traditional demand for gold as a hedge against currency depreciation.”

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