Safe-haven buying pushes gold past seven-year high

Gold ratcheted higher Monday to a more than
seven-year high as investors turned to the sanctuary of the yellow metal amidst
dire predictions of the virus. Comex gold futures on Monday tested the $1,700
high water mark again for the third time this year, falling back from a session
high of $1,709.50 to close at $1693.30 – up by $48.20, or 2.9%.

The U.S. Surgeon General Jerome Adams on
Sunday said that “this is going to be the hardest and saddest week of most
Americans’ lives.” And further that “this is going to be our Pearl Harbor
moment, our 9/11 moment, only it’s not going to be localized.”

Stimulus stimulating gold prices

Investors globally are buying up physical
supplies of the precious metal, fearing massive currency devaluations arising
from stimulus packages to combat the virus.

Against the euro, gold has broken
out to a fresh 20-year high.

“Fiscal and monetary stimulus will
provide a nice backdrop for gold, but safe-haven demand will be high due to
upcoming financial stress that will persist over the coming months as the U.S.
economy enters a very dangerous place,” said Edward Moya, senior market
analyst at Oanda, in a market update.

Gold as a shield against central banks’ debasement of
money

Investors are coming around to appreciate gold’s
long-ignored advantages: a store of value in an environment of fear, hyperinflation
and financial uncertainty, and an asset immune to default from profligate
central banks.

Roy Sebag, chief executive officer and
founder of Goldmoney Inc, a precious-metal investment firm with $2 billion in
assets, said:
“Central banks have officially lost control of their most powerful policy
tools… It is against this macroeconomic sea change that gold will thrive as the
money par excellence.”

Ultra-low, or negative interest rates combined with an economic environment awash in “helicopter money” liquidity are likely to perhaps propel gold even higher. Very low interest rates also enhance the case for buying gold.

Nitesh Shah from ETF specialist WisdomTree
Investments points
out that the indiscriminate expansion of central bank balance sheets will
stoke massive inflationary pressures that would be hugely supportive of gold. He
predicts a price of above $2,000 for the metal.

Analysts at Citigroup also predict a price
of above $2,000 for gold bullion – only they see it happening in 2021.

Gold ETFs and physical bullion in high demand

Year to date, GLD, the gold ETF, has
delivered a daily total return of 5.54%. Among various asset classes, it is the
top
2020 performer alongside Treasuries, the US dollar and German Bunds. Flows
into GLD during the first quarter of 2020 were $3.8 billion.

Among other factors, the physical supply of
gold supply is constricted because local authorities have closed
down three of the biggest gold refineries in the world situated in
Switzerland on the border with Italy. Yet demand is strong, leading to a yawning
gap that is also helping to fan prices of physical gold higher.

“Before this is over, gold is going to go
up a lot,” commodity investor Jim
Rogers said to Bloomberg by phone from Singapore. “Whenever people lose
confidence in money and governments, they always buy gold and silver.”