Gold’s performance in the weeks following the start of the Covid-19 pandemic was anything but exceptional. Prices have been volatile, dropping briefly for the year before climbing to their highest level since late 2012.
The precious metal has been torn between its potential as a safe haven investment and a mad rush to sell the tangible capital asset to cover losses on the stock market.
“The Covid-19 epidemic has had a major impact on the gold market, causing massive price swings as investors react to new developments related to the pandemic,” said Steven Dunn, head of funds traded in stock market at Aberdeen Standard Investments.
“Because of Covid-19, the refiners have been taken offline … and the ability to move gold has become a challenge as normal transportation has become almost impossible,” he said.
The World Health Organization officially declared a Covid-19 pandemic on March 11, but the price of gold did not immediately rise as many expected, although the blow to the world economy became evident with the closure of schools and businesses around the world.
Gold futures traded at $ 1,477.90 an ounce on March 18, their lowest level since the start of the year, before finally reaching an intraday high of $ 1,754.50 on April 9, the highest intraday score since November 2012.
“Gold usually goes through a weak handshake before reaching new heights,” says Jeb Handwerger, editor of Gold Stock Trades, which tracks the junior mining exploration and development sector, referring to forward traders who do not intend to take delivery of the underlying.
Since April 9, since the beginning of the year, gold has risen by more than 15%, against a drop of more than 14% in the S&P 500.
“Gold is reaching unprecedented new heights against most currencies, with the exception of the US dollar, which is the strongest fiduciary currency,” says Handwerger.
After settling at $ 1,752.80 on April 9, prices are now trading at approximately $ 171 per ounce from the intraday high of $ 1,923.70 on September 6, 2011.
“A deduction greater than $ 1,700 would be very constructive in terms of [gold] a boost to reach all-time highs, “but it will take time for the metal to reach these levels, says Adam Koos, president of Libertas Wealth Management Group.
“If the Covid-19 virus is a much deeper and wider iceberg beneath the surface of the economy, then I think we could see an increase in buying pressure” on gold, he said. .
It’s hard to imagine a thriving economy for the rest of this year, and for this reason, Koos says he expects gold prices to rise.
He is reluctant to say that prices will hit a record, but sees a “higher probability” that prices will rise to all-time highs rather than return to $ 1,500 by the end of the year. .
Peter Grosskopf, managing director of asset manager Sprott, however, believes prices could rise above a record. “We are closely following the trades and flows in the bullion markets, as well as the underlying technical analysis, most of which indicate that gold will exceed $ 2,000 by the end of this year or early in the next year, “he says.
“There are too many debts at all levels. We have borrowed in the future and there is not enough savings to pay it back. This equation requires a lot more financial repression in the future, and gold is a great hiding place for this process, ”he says.
An opportunity in the gold mining space is also developing. “Now is a good time to buy gold stocks that have been sold with general stocks in a rush to respond to margin calls” last month, said Grosskopf. “Their margins will be at record levels in the future.”