Gold is the only commodity that looks good through 2020 - UOB Group
(Kitco News) - Hope that the global economy, devastated by the COVID-19 pandemic, will see a sharp recovery is driving broad commodity prices higher; however, one international bank is not convinced the current optimism will last.
In its third-quarter market outlook, United Overseas Bank Group said that gold is the only key commodity with a positive outlook for the rest of the year.
“The question for gold is not one of whether the recent strength is sustainable? This more pertinent question for gold is how strong the rally will be?” the analysts said.
The comments come as gold prices remain near their highest level in nearly eight years and continue to test critical resistance at $1,800 an ounce. However, the bank said that the break might not come until the end of the third quarter.
“Overbought shorter-term conditions could lead to a period of consolidation first but spot gold is expected to stage another push higher towards (and possibly above) the 8-year peak of $1,795, likely closer to the end of third quarter,” the analysts said.
The bank remains bullish on gold as the world faces low to negative interest rates as central banks support the global economy, impacted by the coronavirus.
“Global central banks continue their massive monetary policy easing, providing a strong and steady tailwind for gold,” the analysts said. “Adding to the tailwind, safe haven allocation demand remains strong amidst the on-going economic uncertainty.”
However, the analysts warned that investors should expect to see all-time record prices this year.
“As a result of widespread need for safe haven diversification amidst such uncertain recessionary times, gold ’s long positioning has ballooned to yet another record high,” the analysts said. “This significant allocation will weigh on gold, cause the occasional profit taking and possibly slow down gold ’s ascent.”
Looking at gold ’s technical picture, the analysts said that even if gold faces further consolidation, the precious metal ’s uptrend is far from being at risk.
“Support is at $1,600 but only an unlikely break of $1,500 would indicate that spot gold has found a top,” the analysts said.