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(Kitco News) Gold is up nearly 6% on the week and further gains are imminent, analysts said, still viewing COVID-19 uncertainty as prevailing over the day and benefiting prices gold.
Despite the recovery in stocks, great uncertainty remains as to the economic fallout from the COVID-19 epidemic, which is attracting new investors to the gold market.
“There is a danger here that we are more likely to follow a W-shaped recovery of stocks rather than a V-shaped recovery. We certainly did not get out of the woods faced with the pandemic. We are still going to get negative data, “T.D. Securities’ global strategy chief told Kitco News on Thursday.
The total number of coronavirus cases worldwide now stands at over 1,580,000, with at least 94,500 deaths. The United States has the most cases – 455,000 with at least 16,000 deaths. The latest data for Italy, Spain and Germany are also not encouraging, with new cases continuing to increase.
“We are far from the top of many countries in terms of the virus,” said Capital Economics assistant commodity economist Kieran Clancy. “This uncertainty will continue to benefit gold.”
Economic projections vary, but the latest from banks like Citigroup and JPMorgan Chase is that markets will see at least $ 5 trillion allocated to the global economy over the next two years due to all the coronavirus-related outages.
The gold market looks solid this month, many analysts expect gold prices to continue rising in Q2, Q3 and Q4.
“Investors are still unsure of the recovery in US stocks; therefore, the underlying need for security still exists in everyone’s mind … There is still a lot of uncertainty. People are a little too optimistic about how the money from the Federal Reserve will end up in the pockets of the consumer, “Phillip Streible, chief market strategist at Blue Line Futures, told Kitco News.
Streible forecasts that gold will average $ 1,750 in Q2, $ 1,850 in Q3 and $ 2,000 in Q4.
The Federal Reserve is quite limited in its tools and it seems that it will keep inflation running, which is a big problem for gold in the long term, said Streible. “The Fed has said it is not concerned about inflation at the moment. This really lets the valves open on the gold moving higher. I think gold will look better in the next two quarters, ”he said.
Melek’s short-term goal is $ 1,800 an ounce, followed by gold, and ultimately reaches $ 2,000.
“It will not happen overnight. But it is more than likely that we are heading towards a level of $ 2,000. I must say; we are approaching my short term goal of $ 1,800,” he said. “It will be difficult to exceed $ 1,800 in the second quarter due to the lack of economic activity, without putting pressure on inflation.”
However, if you’re a long-term investor, you can’t forget inflation, added Melek. “You have to start wondering what happens if people go bankrupt,” he said. “The risk is that there will be a deterioration in the currency or purchasing power via an environment of very low interest rates. For long term investors, we will continue to see silver to gold movements. “
More upside for short-term gold is also forecast by Standard Chartered Bank analyst Suki Cooper, who sees an average of $ 1,725 for Q2.
“Spot gold prices have started to consolidate around $ 1,650 / oz, but the macro environment remains conducive to further price increases,” noted Cooper. “Unprecedented monetary and fiscal stimulus, negative yielding debt and low interest rates for a longer period of time mean that gold will continue to attract the flight to security and quality.”
Cooper sees demand from retail investors increasing prices. “Various mints from around the world have reported that March sales have reached multi-year highs. In the United States, April sales are already at their highest level since April 2013, “she said.
TIME TO VOTE: Where is #gold directed next week?
– Kitco NEWS (@KitcoNewsNOW) April 8, 2020
Gold market spreads don’t go away
The unusual spread between spot gold and future prices of the active Comex will likely continue next week as the market faces tight supply.
At the time of writing,
spot gold prices were trading at $ 1,679.00, up 2.02% on the day,
Comex’s gold futures contracts in June were $ 1,742.90, up 3.48% on the day.
“An emerging factor in the gold market, even when refineries are back online, appears to be challenges in the availability of air cargo. This restricts the ability of dealers to move materials to end markets, “said BMO Capital Markets commodity research chief Colin Hamilton on Thursday.
The spread between COMEX and spot gold clearly shows that investors are still concerned about logistical challenges, added ING’s commodity strategists.
“The market expected a shortage of gold bars in New York due to the suspension of certain gold refineries and logistical disruptions. However, the situation should normalize after the partial restart of the refineries. Obviously, investors are still concerned with supply logistics, “they wrote on Wednesday.
Central banks, especially Russia, now have other priorities than storage #gold. “Russian government is strapped for cash,” says Jeff Christian of CPM Grouphttps: //t.co/Z6OFe6UhNm@DanielaCambone @CPMGroupLLC # central banks #Food #economy #invest #KticoNews
– Kitco NEWS (@KitcoNewsNOW) April 9, 2020
Data to watch: CPI, retail, housing
Before the end of this week, the markets will have the possibility to consult the inflation data for March, the US CPI being published on Friday morning. Markets expect inflation to slow to 1.6% in March after reaching 2.3% in February.
Next week, retail sales in the United States will be essential to watch as markets get a first glimpse of how the COVID-19 closings have affected the retail sector. Data for March is expected to be released on Wednesday.
“Retail sales are a big indicator. The market expects a 6% drop in March. It could be much worse, ”warned Melek.
Also on Wednesday, investors will get a glimpse of the Empire State of New York manufacturing index for April and industrial production for March.
On Thursday, the markets will monitor building permits and housing starts in the United States from March as well as the manufacturing index of the Philadelphia Fed from April. “The markets are planning a 17.5% drop in housing starts. It will matter, ”added Melek.
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