Gold at $1,800 is keeping pace with equity markets - Mitsubishi Corp
(Kitco News) - The second quarter was the strongest for equity markets since 1998; however, one analyst notes that the equity market has not been a major headwind for gold as the precious metal kept pace, seeing its best quarterly performance in four years.
In a report published Tuesday, Jonathan Butler, precious metals analyst and head of business development at Mitsubishi Corp., said that diversification will continue to benefit gold as uncertainty dominates financial markets.
“Investors are looking for a risk hedge even as they continue to pile into stock markets,” he said in the report. “Gold is in a perfect storm moment of huge uncertainty as prospects for economic recovery are set against a new spike in coronavirus infections, while real interest rates remain in negative territory.”
Butler added that it is only a matter of time before gold prices see a sustainable push above $1,800 an ounce. Gold pushed above $1,800 an ounce Tuesday but has been unable to hold those gains as it saw a wave of technical selling pressure. August gold futures last traded at $1,773.50 an ounce, down 1.5% on the day
Butler said that he is bullish on gold as unprecedented monetary policy stimulus will keep real interest rates in low to negative territory for the foreseeable future.
“The Federal Reserve has made it abundantly clear that it expects interest rates to remain at rock bottom until at least the end of 2022, thus keeping the opportunity costs of holding gold extremely low,” he said. “With Keynesian fiscal policies being part of efforts help the recovery of various national economies, higher inflation (which may be welcomed by governments in order to manage their debt levels) is a further potential tailwind to gold in the medium to longer term.
Looking at investment demand for the gold market, Butler noted that gold-backed exchange traded products have seen their holdings grow to record levels. He pointed out that gold holdings are up 24% so far this year. He also said that speculative interest is also growing.
"Net long speculative futures positioning on COMEX is currently at a 2-month high of 29 [million ounces] (75% of the all-time high)… suggesting that positioning has further room to grow,” he said.