Gold hits all-time high, eyes $2,000/oz

London — The gold price has hit an all-time high and is now eying $2,000/oz as the world contends with a growing number of coronavirus cases and ballooning government debt worldwide, causing demand from physically backed exchange traded funds to soar.

"Gold roared out of the gates this morning, opening more or less where we closed and sharply ripping to $1,910/oz" analysts at precious metal refiner MKS PAMP said July 27.

"Gold pushed higher shortly after the SGE open and took down the previous all-time high [$1,921/oz] without breaking a sweat. Momentum buying then started to pile in and the metal ripped again to the daily high of $1,944.10 before dropping back through $1,930 just as quickly."

The gold spot price at 1130 GMT July 27 was around $1,943/oz.

MKS PAMP said with little in the way of resistance the next logical threshold was $2,000/oz, with $1,921/oz first support.

Precious metal refiner Heraeus added: "Gold had already recorded record highs in every other major currency this year, and, now the dollar record has been broken, $2,000/oz could be the next target."

The gold price in euros also jumped to a record high of Eur1,660/oz, though the price increase is also correlated to other factors, Commerzbank commodities analyst Carsten Fritsch said in a research note June 27.

"These include the escalating tensions between the US and China, the growing concerns about currency debasement following the sharp rise in the money supply, and the negative real interest rates," Fritsch said.

UBS analysts share the view that gold will continue to be reinforced by rising geopolitical tensions.

"In our view the primary drivers of the gold price are its negative correlation to real interest rates and the dollar," UBS analysts said.

"We think these three factors, in combination with limited supply growth as miners continue to restrain capital spending, will drive gold prices higher."

Gold's momentum

Fritsch said the metal's significant momentum suggests that the rally will continue, with gold potentially eying $2,000/oz over the next few days, though profit-taking may likely be followed.

"The speed of the upswing should sound a warning bell, however, as this can often precede a fall," Fritsch said. "The fact that the rise in the gold price has been hardly driven by speculation at all argues against any excessive correction."

Gold's momentum is echoed by analysts at investment group SP Angel.

"Gold will continue to feed off the extent of the spread of the coronavirus and the disruption it causes to the US and other economies," SP Angel said.

"New local lockdowns in the US and coronavirus-related disruption is already impacting economic recovery as seen with the further collapse of US airline shares."

Considerable physical inflows into gold-backed exchange traded funds continue, with gold ETFs weighing in at $106.8 million oz, "a new record as Robinhood and other investors pile into the instruments in preference to holding cash," SP Angel said.

Backdrop bullish for gold

Martin Murenbeeld, head of Murenbeeld & Co., a consultancy specializing in gold markets, international financial and economic trends, said that it has become progressively challenging to identify bearish factors in the gold outlook.

"Yes, higher US interest rates and an end to QE should stop gold from rising, but what is the probability of this happening over the next six quarters? And then, what happens to the servicing of record levels of government debt? More government revenues could potentially help, but popular policies to raise taxes do not auger well for higher growth and more employment," Murenbeeld said.

"By default, the inflating-our-way-out-of-debt option, which we have discussed often in connection with reducing debt/GDP ratios, becomes the likely policy option going forward. And that is, of course, bullish for gold!" he said.

UBS said it remains positive on gold and has raised its forecasts.

"[We] now expect prices to reach $2,000/oz by end-September and end-December (from $1,900/oz earlier)," UBS said.