Gold Surges to Record High as Investors Seek Safe Haven

Daniel Fowler
July 29, 2020

"Investors may have become anxious that the appreciation in stock prices will not be justified in second quarter earnings, prompting them to buy gold as a hedge against market volatility", Anthony said.

Bullion futures pared a climb of more than 2% to a record as traders looked to lock in profits and the dollar recouped some of its earlier losses. "We think these factors, in combination with limited supply growth as miners continue to restrain capital spending, will drive gold prices higher", Haefele said. The sharp rise in silver price has, however, pushed investors to sidelines. They were trying to try a few more times and a correction is due.

Increasing concerns about the virus pandemic as well as deteriorating relations between the USA and China add to gold's allure, and most analysts are bullish on the metal's outlook. "The move to $2,000 an ounce will happen much more quickly than the move from $1,800-$1,920", he said.

The dollar fell to a near two-year low versus major currencies as a standoff between Washington and Beijing showed no signs of abating with both sides ordering the closure of consulates in Chengdu and Houston. Geopolitical tension between US & China and weakness in dollar supports the bullions. With gold near record high, some buying may have shifted to silver, which is cheaper but has a strong positive correlation with the yellow metal. There are some expectations that setbacks in the global fight against the pandemic will push Chairman Jerome Powell to signal that rates will stay near zero for longer.

Of the 18% returns forecast for gold over the next year, Goldman estimates 9% will be driven by five-year real rates going to minus 2%, and the remainder from the "15% increase in the EM dollar GDP".

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For silver, there's an added boost from concerns about supply, with the Silver Institute earlier this month forecasting a 7% decline in mine production in 2020.

Gains in industrial metals have also lent support to silver.

Silver tends to perform very strongly when the desire for wealth protection, or fears of inflation-induced wealth destruction, are high and when global economic activity is improving, according to Citigroup.

Gold (XAU/USD) saw another day of solid advance and settled Wednesday near the highest levels since September 2011 around $1942.

On gold's near term outlook, Anuj Gupta, DVP- Commodities and Currencies Research, Angel Broking said,"Today, again we saw that gold has touched the lifetime high at Rs 51,833 levels and in the global market, it touched the lifetime high to $1944.50 per ounce levels".

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