Gold’s spot and futures prices opened the week by hitting records, with the metal for immediate delivery closing in on $2,000 an ounce as the search for haven assets continued amid the coronavirus pandemic.
Spot bullion surged 11% in July, the biggest monthly gain since 2012, as investors weighed a weaker dollar and record low U.S. real yields. Strategists are now considering alternatives to government debt, such as cash, credit, dividend shares and gold. RBC Capital Markets said that gold seems like a “freight train” as investors have gone haven hunting.
The health crisis has prompted unprecedented amounts of stimulus being unleashed to shore up economies including lower rates, which are a boon for non-interest-yielding gold. Simmering geopolitical tensions are also boosting demand — U.S. Secretary of State Michael Pompeo said the Trump administration will announce measures shortly against “a broad array” of Chinese-owned software deemed to pose national-security risks.
“The fall in U.S. 10-year real yields was the most important driver in our view given the strong inverse relationship,” Vivek Dhar, an analyst at Commonwealth Bank of Australia, said in a note. “Safe haven demand primarily reflected global growth concerns linked to rising Covid‑19 cases around the world and escalating U.S.‑China tensions.”
Spot gold rose as much as +0.6% to $1,988.40 an ounce and traded at $1,973.59 by 8:23 a.m. in London, while most-active futures traded as high as $2,009.50 on the Comex. Spot silver dropped 0.4% to $24.2921 an ounce after surging 34% in July.
Infections are picking up again in some U.S. states — cases in California increased by more than the 14-day average and New Jersey’s virus transmission rate rose further. Federal Reserve Bank of Minneapolis President Neel Kashkari on Sunday urged Congress to act to support Americans laid off due to the pandemic and suggested a fresh lockdown.
Global cases surpassed 18 million as the pandemic is now adding a million infections every four days. Australia’s Victoria state tightened restrictions and declared a state of disaster, while the Philippines reimposed a lockdown in Manila.
More gains are seen for gold as the path to economic recovery remains uncertain. RBC Capital Markets said prices may top $3,000 should the global situation deteriorate materially, with that outlook representing its bull-case scenario, which has a 40% probability. In its base-case view, which has 50% odds, prices will pass $2,000 in the coming quarters.
“Gold positioning indicates that investors’ attitudes toward the metal have changed amid the public health crisis, economic turbulence, and extremely easy monetary policy actions,” RBC commodity strategist Christopher Louney said in an Aug. 3 note. “Gold’s outright price gains have made it a star asset in 2020, arguably appearing more popular than ever.”