Gold’s Powerful Rally Brings $1,800 Into View

(Bloomberg) — Gold extended its rally to hit the highest level in more than seven years on concern that the coronavirus pandemic will have a devastating effect on the global economy, hammering corporate earnings while supercharging demand for havens.
Futures in New York moved closer to $1,800 an ounce, the level last seen in 2011. Spreads between futures and spot prices remain wide, suggesting thinner liquidity, which is further exacerbating price dislocation.
“Liquidity conditions are challenging and market participants are understandably cautious,” Joni Teves, a strategist at UBS Group AG, said Tuesday in a note. “Gold’s journey has been quite bumpy so far, but given the macro backdrop we think the destination remains higher.”
Bullion has soared this year as the global heath crisis tipped economies into recession and spurred central banks to launch huge stimulus measures. Since last month’s wave of forced selling, as equities sank, gold has staged a recovery.
Comex gold futures for June delivery climbed as much as 1.3% to $1,785 an ounce, the highest since October 2012, and was little changed at 10:24 a.m. in London. Spot gold was more than $40 cheaper at $1,720.34, with the huge spread a feature of trading in recent weeks amid physical market disruptions.
Overall, gold still has room to run, according to Hans Goetti, founder and chief executive officer of HG Research.
“What’s happening here is that the Fed is expanding its balance sheet and every other central bank in the world is doing the same,” he told Bloomberg TV. “What you’re looking at is massive currency debasement in the long term. That’s the major reason why gold is higher, and I would think that over the next few weeks or months, we’re probably going to retest the high that we saw in 2011.”
Gold’s latest upswing has come even as risk sentiment received a boost after China’s trade data beat estimates, while the pace of coronavirus infections has slowed in some countries, with the focus shifting toward how lockdowns can be eased. President Donald Trump said he has “total” authority to order states to relax social distancing and reopen their economies.
Banks including UBS Group AG have boosted price targets for the metal. Worldwide holdings in bullion-backed exchange-traded funds have ballooned to a record on rising demand, with investors seeking additional portfolio protection. On Monday, volumes in SPDR Gold Shares, the largest such fund, surged above 1,000 tons to the highest since mid-2013.
As earnings season kicks off in earnest this week, investors will be looking to get a better sense of how bad the hit to profits has been and what to expect this quarter.
In other precious metals, platinum gained while silver and palladium were little changed.