How Far Can Gold Climb
This is a new record: an ounce of yellow metal exceeded $ 2,000 on Wednesday. And this rise is not over, according to experts.
At the start of the Covid-19 crisis, gold had surprised unfavorably, losing more than 20% of its value. A drop yet classic! “In each crisis (1998, 2000, 2007), it’s the same scenario,” recalls John Plassard, investment specialist at Mirabaud. The price of the yellow metal begins to decline, with investors selling their positions to have liquidity and to cope with the withdrawals of their clients. Gold then rises, regaining its role as a safe haven. From there to reaching 2,000 dollars an ounce so quickly and exceeding its September 2011 record (1,921 dollars), only the most daring, like John Plassard or Benjamin Louvet at Ofi Asset Management, had risked it, worried about the persistence of the health crisis and the depth of the economic recession.
However strong it may be (+ 33% since the March trough), the rise does not seem to be over. For at least six reasons:
1) The persistence in the coming months of the accommodating monetary policy of the central banks. To support economic activity undermined by the Covid and the containment, central banks have injected nearly 2,000 billion euros in liquidity and kept as a corollary low interest rates, even negative. The yield on ten-year US treasury bills thus fell to -1%.
2) The implementation of expansionary fiscal policies to support the economy, all the stronger when the epidemic is not contained and the rebound will require financial and social support measures to ensure the construction of the world after (digitization…). In both Europe and the United States, a return to balanced budgets is no longer on the agenda. As proof, Angela Merkel has, for the first time in German economic history, renounced the dogma of orthodoxy.
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3) A growing demand emanating from traditional players (central banks), but also from players who hitherto had little involvement in gold (ETF managers, investment funds, pension funds, etc.). With the only downside, the 40% drop in jewelry purchases, which until then represented a third of demand.
4) The political uncertainties marked by the American elections, the Sino-American conflict, Brexit …
5) The disappearance of its main handicap: that of not delivering a return (no interest, no dividend). With the low rates, its competitor – the bonds – brings nothing or almost nothing. Individuals are not mistaken and in recent weeks have increased their purchases of physical gold by more than 15%, according to figures from the Gold network, in cash but also via index products (ETF).
6) Its role as a safe haven in the face of volatile financial markets which could suffer from falling corporate results.
For all these reasons, the experts of the Private Banking Union do not exclude an ounce of gold between 2,100 and 2,300 dollars, those of Goldman Sachs an ounce to more than 2,300 dollars within a year while those of Goldman Sachs of Bank of America are counting on 3,000 dollars in eighteen months. Gold has not finished surprising us!
Editor’s note: This article is for reference only and does not constitute an offer, solicitation or invitation, inducement, any representation regardless of type or form, or make any suggestions and recommendations. Readers should use their independent thinking ability to make their own investment decisions If any losses are incurred due to the relevant recommendations, it has nothing to do with istanbulpost.com.tr , the editor and the author.
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