Gold hits 2011 highs above $1,800/oz.
Gold prices have broken fresh records, despite a recent rally in equities, amid ongoing concerns about the long-term economic impact of the Covid-19 pandemic and the prospect of rising inflation.
Prices for the August 2020 contract rose to $1,810 per ounce on the New York Mercantile Exchange, the highest since 2011, while the morning fix in London on Wednesday was $1,775.50.
As a safe-haven asset, gold usually rises when stock markets are falling. However, equities in both the US and UK have rallied in recent weeks. After briefly dipping below the key 5,000 level in late March, when the UK lockdown was announced, the FTSE 100 is currently trading above 6,100. On Wall Street, the Dow Jones Industrial Average has recovered from a low of 18,591 in March to close on Tuesday at 25,890.
However, concerns remain about the long-term impact of the Covid-19 pandemic on global growth, an increase in regional lockdowns and the prospect of a second wave of the virus.
There are also fears that inflation could spike because of the various stimulus packages and liquidity provision announced by central banks in recent months to support economies during the crisis.
Neil Wilson, chief markets analyst for Markets.com, said: “The gold bull thesis rests not only on the requirement for safe-haven assets, given the economic uncertainty, but also longer term on fears of a surge in inflation caused by the massive increase in the money supply caused by the central banks. In large part due to the corresponding fiscal actions, unlike the quantative easing that occurred after the financial crisis, this time the excess cash is not going to get lost in the banking sector.”
Naeem Aslem, chief market analyst at Avatrade, said: “Gold spot prices are nearing the critical level of $1,800 as investors continue to favour gold because coronavirus has ripped global economic growth.”
Berenberg noted: “Gold has been buoyed by the prospect of ultra-lose monetary policy over the short and medium term, with investors buying the metal as a safe haven after the initial dash to cash in March.”
SP Angel noted reports that “investors are monitoring the Federal Reserve and assessing the likelihood of further stimulus, which is supportive of metals prices as they are historically a hedge against inflation”.