Gold prices to lose luster near $2,000: J.P. Morgan

Daniel Fowler
July 28, 2020

Futures contracts of silver on the MCX also soared on Monday. Silver rode on its coattails, jumping to the highest in almost seven years.

Spot gold rose 1.5 per cent to $1,928.83 per ounce by 0306 GMT after hitting an all-time high of $1,933.30.

Bullion's move-which may put it on track to take out $2,000 an ounce-came as a gauge of the dollar sank to the lowest in more than a year amid negative real rates in the USA and bets that the Federal Reserve will keep policy accommodative when it meets this week.

The net-long US Dollar exposure persists even though theDXY index continues to track the downward trend from the March high (102.99), and the low interest rate environment along with the ballooning central bank balance sheets may continue to act as a backstop for the price of gold as market participants look for an alternative to fiat-currencies.

Monday's record gold prices were preceded by a rise last week, when the price of the precious metal on the New York Mercantile Exchange and Commodity Exchange (COMEX) surged to $1,904 per troy ounce, eclipsing a previous record set in September 2011.

Gold's record rally is moving tantalizingly close to the psychologically key $2,000 (1,556 pounds) level, powered by investors seeking cover from COVID-19′s global economic toll, as reflected in dollar weakness, faltering stocks and U.S. In the USA, investor expectations for annual inflation over the next decade, as measured by a bond-market metric known as breakevens, have moved higher the past four months after plunging in March.

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The meeting may be a platform for a strong message that change is coming, opening up the possibility for more unconventional policies further down the line, according to Chris Weston, head of research at Pepperstone Group in Melbourne. "We think these factors, in combination with limited supply growth as miners continue to restrain capital spending, will drive gold prices higher", Haefele said. "And as long as the [virus situation] gets worse, the market is discounting more stimulus for a longer period of time and in bigger quantities, and all of that is bullish for gold", he said.

The precious metal was up 2.2% at its peak Monday, reaching $1,940.10 per ounce.

Silver too joined the rally, jumping 4.5 per cent to its highest since September 2013 at $23.86 per ounce.

Escalating tensions between the U.S. and China, need for more stimulus measures, a weak USA dollar and rise in cases of coronavirus infections across the globe have kept demand for gold high.

-With assistance from David Stringer. Click the link to confirm your subscription and begin receiving our newsletters.

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