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Gold price heading to new highs, beating copper, oil and equities - Bloomberg Intelligence

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(Kitco News) - Gold remains the commodity to own, and investors should expect to see prices hit new all-time highs driven by unprecedented monetary stimulus and deficit spending, according to one market analyst.

In a report Tuesday, Mike McGlone, senior market analyst at Bloomberg Intelligence, said that the price action in the gold market continues to resemble what happened during the 2008 financial crisis. Although gold prices suffered from a more than 20% decline in the midst of the crisis, prices quickly recovered and within three years reached an all-time high at $1,900 an ounce.

“With base rates at zero or negative, and the Federal Reserve embarking on seemingly unlimited monetary stimulus akin to 2008, we see gold extending its $1,900-an-ounce peak as the next in a stair-step recovery process,” McGlone said in the report. “If following the script from the 2008-09 financial crisis, the term "recovery" portends new highs for gold. About $1,000 was the initial threshold then. In today's climate, it's comparable to $1,900.”

The comments come as volatility continues to roil financial markets and impact gold prices. June gold futures last traded at $1,595.40 an ounce, down nearly 3% on the day.

Although the gold market is struggling to gain traction, McGlone said that the yellow metal will be the asset to own as the spreading coronavirus pushes the global economy into a sharp recession. He added that the precious metal will outperform both oil and base metals.

“Copper and industrial-metal prices should follow crude oil and probe for more extended lows before stabilizing, in our view,” he said. “The unprecedented level of global demand destruction amid the coronavirus pandemic and diminished hopes of economic recovery are enduring base-metal headwinds.”

Looking at oil prices, McGlone said that he expects the market to form a solid bottom around $20 a barrel. Oil prices are seeing a modest recovery after falling to an 18-year low below $20 a barrel.

McGlone also warned that investors should keep a close eye on the copper market as lower prices do not bode well for equity markets.

U.S. equity market is seeing its worst quarterly performance since 2008 but McGlone said that this could be just the start.

“Similar declines in copper and equities in 2020 reflect strong companionship in a global recession,” he said. “Most risk-asset betas, notably for the base metals, should remain closely linked to the equity market, in our view. On a 52-week basis, the S&P 500 was down 10% to March 27. In 2000-01, the index sustained 30% losses for about two years. In 2009, the bottom was about minus 50%.”

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.