Gold Price Tops $1,900 on Longest Winning Streak Since 2011

Gold Price Tops $1,900 on Longest Winning Streak Since 2011

Reprinted from the FT – 25/07/2020

Metal closes ground on a record high as investors seek protection from COVID and inflation. The gold price has risen about a quarter this year, making it one of the best-performing asset classes in 2020. Gold was closing in on a record high on Friday, climbing above $1,900 a troy ounce as geopolitical tensions kept the haven metal on its longest winning streak since 2011.

The commodity, used by investors as a store of value in times of stress, has rallied strongly as other safe assets have become less attractive, strategists say. The US dollar has weakened in recent weeks as America’s Covid-19 crisis deepens, while the inflation-adjusted yields available on benchmark government bonds have slumped well below zero. Gold rose as much as $19 in afternoon trading on Friday to a high of nearly $1,906 an ounce, keeping it on course for a seventh straight weekly gain, as a deepening diplomatic row fed tensions between Washington and Beijing.

The metal is now approaching its record intraday high of $1,921 set in September 2011, having risen about a quarter this year — making it one of the best-performing assets in 2020. “Financial markets tend to move like a giant pendulum, and once it swings it is very hard to stop it. That is definitely the case in gold,” said Peter Grosskopf, chief executive of Sprott, a precious metals specialist with $12bn under management.

“The latest move is being driven by the COVID outbreaks we are seeing in the US and the realisation that the recovery is going to be longer and harder than many people were expecting a few weeks ago,” said Joe Foster, fund manager at VanEck in New York.

“The US dollar is also weak, and silver has broken out so that probably tells you some speculative money has come into the market.” Silver, which hit a seven-year high above $23 an ounce on Wednesday, is heading for its biggest weekly gain in decades.

Gold’s strong run has also turbocharged the share-price performance of big producers, which enjoy bumper profits when prices rise because there is no accompanying increase in costs. The NYSE Arca Gold Bugs index is up almost 37 per cent so far in 2020. Governments and central banks across the world have unleashed huge fiscal and monetary support to dull the economic blow of the pandemic.

This has driven down yields on safe government bonds, with some US Treasuries paying investors a negative return once inflation is taken into account. “Clients are quite concerned about the unprecedented need for fiscal and monetary assistance,” said Mr. Grosskopf. I have never seen a set-up so good for gold as it is right now. I expect it to test $2,000 later this year Joe Foster, fund manager at VanEck Investors, has stashed a record $40bn of cash in gold-backed exchange-traded funds during the first half of the year, according to the World Gold Council. Mr. Foster said he expected the inflows to keep coming. “I have never seen a set-up so good for gold as it is right now. I expect it to test $2,000 later this year,” he said.

“There are scenarios that could take gold to double that in the next several years,” he added, pointing to the potentially inflationary effects of the trillions of dollars of COVID stimulus measures. Bank of America said investors were looking to hedge this inflationary risk by “crowding” into bets on a falling US dollar and a rising gold price. The bank’s chief investment strategist Michael Hartnett said the debasement of the dollar had emerged as a key theme for big fund managers as the US economy struggled with excess debt, insufficient growth, and maxed-out monetary and fiscal stimulus.