Gold price hits highest since 2012, eyes $1,800/oz

The gold price tested fresh highs Tuesday after the Easter break as the wider market continued to seek safe havens from the economic fallout from the continued coronavirus pandemic with some now expecting it to hit $1,800/oz.

Gold was spot bid around $1,740/oz as of 1500 GMT, an eight-year high, up around $80 from a week earlier.

As the world teeters on recession caused by the coronavirus pandemic investors are seeking ways of hedging losses, one of them being buying gold futures.

S&P Global Rating analysts said recently that: "As the coronavirus pandemic escalates and growth heads sharply lower against a backdrop of volatile markets and growing credit stress, we now forecast a global recession this year, with 2020 GDP rising just 1.0%-1.5%. The risks remain firmly on the downside."

On Tuesday, the IMF forecast a 3% fall in global GDP compared with its previous prediction of 3.3% growth.

Speaking to S&P Global Platts Suki Cooper, precious metals analyst at Standard Chartered, said that the bank maintains its second quarter 2020 average forecast at $1,725/oz and still see further upside risk for gold prices as they have breached levels last seen in 2012.

"Unprecedented stimulus, uncertainty surrounding the depth of a recession and negative yielding debt continue to draw investor interest. Tactical positioning is still relatively light suggesting scope for further growth while ETP holdings are scaling record highs and retail investor demand has soared to multi-year highs. It bodes well for gold that retail investor demand has finally started to pick up," Cooper said.

Last week Jeff Currie, global head of commodities research at Goldman Sachs, told Platts that the bank sees gold heading towards $1,800/oz near term.

Looking at wider market dynamics he said that, "we are in a very, very, very bearish environment."

Currie also noted that what we are currently seeing is different to the crash of 2008-09, as that was a financial crisis, whereas this is a "real world" or physical crisis.

Tuesday gold was gaining in tandem with global equities, which was an unusual correlation as generally gold sinks when risk is on and vice versa.

One senior economist told Platts Tuesday that any meaningful return to risk could act as a headwind for the bullion price.

Last Thursday the US Federal Reserve injected $2.3 trillion into the US economy, as a means of countering the damage caused by the pandemic fallout.

"The latest wave of buying was sparked by the announcement last week that the Fed will invest up to $2.3 trillion in loans to aid small and medium sized business, as well as local governments. This is on top of the massive stimulus that they had already announced. Investors are also getting increasingly concerned about the impact of COVID-19 on emerging markets," ANZ bank said in a note to clients.

The Fed also slashed is base rate to zero earlier in the year. "The market is broken, is all I can say," a senior banker said.

TD Securities' head of commodity strategy, Bart Melek, said: "We suspect investment demand for gold will continue to rise as capital seeks shelter from a long-term environment in which real rates are negative."

The gold price is up 35% from the same time a year ago.

ETF holdings hit highs

Holdings in gold-backed exchange traded funds reached an all-time high of 3,185 mt in March, seeing inflows of 151 mt ($8.1 billion), as investors rushed for safe havens, according to the latest figures from the World Gold Council.

"Physical demand has slowed while paper demand, especially through exchange traded funds, goes from strength to strength amid the troubling outlook for growth, equity returns and falling real yields," Saxo Bank's Head of Commodity Strategy, Ole Hansen, told S&P Global Platts.

In India, one of the world's largest physical gold consuming nations, the outlook for bullion was extremely bearish.

"The farmers can't farm, so how can they afford to put their earnings in to gold? They have no money. The middle class are now more interested in designer handbags rather than gold. Also, Indians are very price savvy, they buy when gold is low, not when it's at highs," a senior broker in Delhi said.

Tuesday India extended its lockdown to May 3. The economy post shutdown is expected to be in reset mode, as domestic supply chains have been unsettled, with liquidity constraints likely to emerge and migrant labor unlikely to return to work soon.

"Physical demand such as from the jewellery sector remains weak and is likely to remain so in the coming weeks with India's lockdown having been extended," Cooper added.