Gold futures nearing psychological $1,800-an-ounce level
(Kitco News) - Gold prices have hit their highest level in more than seven years as the growing number of COVID-19 cases means increased worries about the economy, with some market participants moving into gold as a hedge in case equities tumble again, analysts said.
“The fundamentals this week seem to be a little more bullish,” Phil Flynn, senior market analyst with Price Futures Group, told Kitco News. “The market is finally starting to grasp the impact of all the economic stimulus and the fact that it’s going to continue for some time.”
In fact, others said, traders are starting to anticipate even more stimulus and monetary accommodation.
“And because there is some concern about the stock market being too high too quickly, we’re seeing a little bit more hedging back into gold,” Flynn added. “The technicals right now look like we’re in breakout mode.”
Around 8 a.m. EDT, Comex August gold was $9.60 higher to $1,791.60 an ounce and peaked at $1,796.10. Spot metal was $8.75 higher to $1,775.80 and traded up to $1,778.30, its most muscular level since October 2012. Meanwhile, the futures for the Dow Jones Industrial Average were more than 200 points lower in electronic trading ahead of the open on Wall Street.
“Gold prices continue to push higher, moving close to the $1,800/oz level as the yield on U.S. 10-year inflation-linked bonds dropped even further into negative territory,” said a research note from BMO Capital Markets. “We would reiterate that, of all the correlations used to analyze gold, that 10-year TIPS [Treasury Inflation-Protected Securities] has proven the most reliable through the cycle.”
Flynn noted that traders are focused on the $1,800-an-ounce psychological level, watching to see if the market can push through this on Wednesday.
“Based on the momentum, I wouldn’t be surprised to see us go even higher than that in the short term. We have a target in the short term of around $1,850,” he said.
George Gero, managing director with RBC Wealth Management, attributed gold’s strength to softer equities and worries that the rise in COVID-19 cases could impede the economy’s attempt to rebound. “All this means haven buyers,” he said.
Commerzbank pointed out that an average of 150,000 new coronavirus cases has been reported in the last seven days, the most ever, with the biggest increases occurring in the U.S. and Latin America. A number of U.S. states are reporting record daily rises, and public-health authorities are continuing to express concern. All of this generates additional worries about the U.S. economy.
“This could necessitate further stimulus measures by the U.S. government and U.S. Federal Reserve, which would continue the breath-taking currency debasement that is the result of expanding central-bank liquidity and national debt,” said Carsten Fritsch, analyst with Commerzbank. “This is evident not only in the exponential increase of the Fed’s balance sheet, but also in the unprecedented growth of the money supply. In the U.S., the M1 money supply soared by 33% year-on-year in May – more steeply than at any time since recording of the data began more than 60 years ago.
“It is no surprise then that investors are seeking refuge in a store of value such as gold, and that gold ETFs are therefore registering substantial inflows.”
BMO pointed out that year-to-date ETF inflows of 691 metric tons are “already higher than the annual inflows in any recent year.”