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Gold breaches $2,000 an ounce for first time

By Michele Maatouk

Date: Wednesday 05 Aug 2020

Gold breaches $2,000 an ounce for first time

(Sharecast News) - Gold prices have hit a hit fresh record high as investors continue to look for a safe place to park their cash.
Overnight, gold rose to $2,030 an ounce, breaching the $2,000 level for the first time.

CMC Markets analyst Michael Hewson said the move was prompted by further declines in US two- and five-year bond yields, which are trading at new record lows below 0.2%, "thus making the yellow metal much more attractive in terms of a longer-term investment".

A weaker dollar, geopolitical tensions - in particular souring relations between the US and China - and worries about a second wave of coronavirus infections also contributed to the surge in gold prices, which have risen more than 30% since the start of the year.

In addition, the yellow metal, widely considered a hedge against inflation, was being boosted by expectations of an uptick in inflation as governments and central banks continue to pump out stimulus to counter the economic fallout from the Covid-19 pandemic.

Currently, all eyes are on the US as Democrats and Republicans attempt to reach a deal on further stimulus by the end of the week.

Bank of America Merrill Lynch said in a research note: "Gold has rallied as real rates have fallen. Continued fiscal spending as governments are mending the damage from Covid-19, backstopped by central banks means that interest rates will remain low, at the same time as the economy reflates."

The bank reinforced its $3,000 an ounce target for the precious metal. "This is very supportive for gold. Similarly, silver benefits from the macro backdrop, but demand should also strengthen on the back of the green stimulus; we see $35/oz feasible next year, but also highlight that the white metal could rally to $50/oz in the medium-term."

Naeem Aslam, chief market analyst at Ava Trade, said: "The path of the least resistance for gold is still skewed to the upside and there is enough momentum that can push the gold price toward the $2,500."

Analysts at ING noted that investors are continuing to pile into gold ETFs, with holdings up by more than 820koz over the last week, leaving them at a record 108.51moz.

"Given that low rates and a weaker USD are likely to persist, we believe that there is still further upside for gold prices," they said.

IG analyst Chris Beauchamp said: "That both equities and the supreme risk-off asset are moving higher just shows how conflicted investors are - they can't avoid being tempted by equities, but they can also read the unending stories of bankruptices, such as Virgin Atlantic in the US this morning, and the litany of job losses, with WHSmith becoming the latest High Street firm to cut roles, and thus can see the appeal of gold.

"But then 2009/10 also saw these two asset classes gain in tandem, so we are not living in an entirely unprecedented world. Then as now the key has been the liquidity provided by central banks, while now markets also look to further government stimulus."



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