· Gold prices inched higher on Thursday on a weak dollar amid improving risk sentiment on hopes that the novel coronavirus pandemic is nearing a peak.
Spot gold rose 0.1% to $1,647.94 per ounce by 0312 GMT, having hit a four-week high of $1,671.40 on Tuesday. U.S. gold futures were flat at $1,683.40 per ounce.
· With the dollar showing signs of weakness, gold prices will remain supported, Stephen Innes, chief market strategist at financial services firm AxiCorp, said in a note.
· Trading volumes have tapered off over the past 24 hours as risk sentiment has stabilised and started to improve, he added.
· Asian shares rose, tracking gains on Wall Street, and risk-sensitive currencies climbed on optimism that the pandemic may be peaking. The dollar was little changed after slipping 0.1% against key rivals earlier in the session. It is down 0.6% so far this week.
· New York Governor Andrew Cuomo said on Wednesday efforts at social distancing were working in getting the virus under control, even though the hardest-hit state in America reported its highest number of deaths in a single day.
· U.S. President Donald Trump said he would like to reopen the economy with a "big bang" but that the death toll first needed to be heading down.
· Meanwhile, the European Union's disease monitoring agency said there was no sign yet that the peak of the region's outbreak had been reached.
· Stronger equities took the edge off investor appetite for gold, but do not completely eliminate it, said ANZ analyst Daniel Hynes, adding that the metal was also one of the assets closely following moves in the oil market.
· Crude oil futures rose on expectations that the world's largest oil producers would agree to cut production amid a coronavirus-driven collapse in demand.
· Confirmed infections of the new coronavirus exceeded 1.41 million globally and the death toll crossed 83,400, according to a Reuters tally.
In a bid to support economies hammered by the outbreak, governments and central banks around the world have unleashed unprecedented fiscal and monetary stimulus.
· Reflecting appetite for bullion, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continued to rise.
· Palladium rose 0.1% to $2,176.73 per ounce, while platinum gained 0.1% to $730.15 per ounce, having touched a more than three-week high on Wednesday.
· Silver climbed 0.1% to $15.06 per ounce, having touched a more than three-week high on Tuesday.
· Need to get past Q2 volatility, but Natixis sees gold price pushing to $1,900 By Q4
The gold market is consolidating just below $1,700 after prices hit a fresh seven-year high Tuesday. Although bullish sentiment remains strong in the gold market, one analyst is warning investors that the second quarter could still be difficult for the yellow metal.
In a report published Tuesday, Bernard Dahdah, precious metals analyst at Natixis, said that he is bullish on gold and sees higher prices by the end of the year; however, he warned that there could be more forced liquidation in the gold market during the second quarter.
“We could see further sharp drops in the U.S. equity market, with our strategists forecasting a further 15% slide in between now and June. The worse is still not behind us and we therefore see further downside in the coming weeks,” said Dahdah.
However, looking past the short-term volatility, Dahdah said that he expects gold prices to average $1,850 an ounce in the fourth quarter. He said that he sees gold prices averaging $1,790 an ounce for 2020; he has also boosted his 2021 average price forecast to $1,823.
Looking at the economic toll, the coronavirus is taking on the U.S. economy, said Dahdah, noting that his firms expects defaults and bankruptcies to rise more than 9% this year, even as governments continue to throw money into financial markets.
“Bankruptcies will inevitably happen which will ultimately lead to an irreversible loss of capital and potential GDP,” he said.
Dahdah added that deflationary pressures and weak economic growth should prove to be supportive for gold throughout 2020. In the current environment, he expects the Federal Reserve and the European Central bank to keep interest rates at extremely low levels until at least the third quarter of 2021.
“This will keep the opportunity cost of holding gold low,” he said.
Another factor the commodity analyst is watching is mine supply. A significant portion of mine production was shut down last month as governments halted all non-essential businesses in an effort to stop the spread of the coronavirus. Reduced supply should continue to support prices, Dahdah added.
Natixis provided a mixed outlook for central bank demand, stating that demand will be weak in 2020 as countries focus on keeping businesses solvent. However, Dahdah noted that the official sector demand should pick up next year.
“Into 2021, we could see Central Banks making further efforts to diversify away from the dollar and into gold. Moreover, a sharp rebound in oil prices would potentially see the Central Bank of Russia return to the gold market,” he said.
· Gold prices could still climb at least 20% higher from current levels due to increased monetary and fiscal stimulus, according to Nitesh Shah, director of commodity research at WisdomTree.
“I think $2,000 an ounce is easily realistic. We’ve seen central banks and fiscal institutions announce some of the most bold stimulus measures ever. The expansion of the central-bank balance sheet and the inflationary pressures that would bring are immense, and that’s usually [bullish] for gold,” Shah told Proactive.
Reference: Reuters, Kitco
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