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Gold spot price breaks above $2,000/oz: analysts

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Gold spot price breaks above $2,000/oz: analysts

  • Author
  • Filip Warwick
  • Editor
  • James Leech
  • Commodity
  • Metals

London — The gold spot price broke above $2,000/oz late Aug. 4 and hit an all-time high of $2,044/oz around 1100 GMT of Aug. 5, analysts said.

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"Huge session for the precious on Tuesday [Aug. 4] as gold breaks the psychological $2000 barrier for the first time. The action kicked off in early NY trading, the prospect of further US stimulus is putting pressure on the greenback and treasury yields which provided the catalyst for the rise," analysts at precious metal refiner MKS PAMP said Aug. 5. "Once the recent resistance around $1980 was broken the metal took off, we saw a mixture of macro buyers and real money in conjunction with short covering around $2000."

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The LBMA said this is the first time in its 100+ year history that the London price of gold has exceeded $2,000/oz.

"I can think of no clearer demonstration of gold's role as a store of value than the enthusiasm with which investors across the world have turned to the metal during the unique social and economic turmoil of the past few months," said LBMA CEO Ruth Crowell. "Gold has once again proved to be the safe-haven of choice in periods of uncertainty and high volatility."

At Eur1,720/oz, gold in euros is also more expensive than ever before, Commerzbank commodities analyst Carsten Fritsch said in a research note Aug. 5.

"There was no specific trigger for the upswing in gold and silver prices since yesterday afternoon. It is probably the expectation of further stimulus measures on the part of governments and central banks that is driving prices ever further up," Fritsch said. "It is also worth mentioning the weak US dollar, even if it has not depreciated significantly further of late. Bond yields are also on a clear downward path, which is likewise lending tailwind to the gold price."

Negative real rates act as driving force

Standard Chartered Bank precious metals analyst Suki Cooper said negative real rates continue to be the main driving force for gold prices, while 5Y real yields have declined to May 2013 levels.

"However, over the past two weeks in particular, USD weakness has propelled prices higher and our FX strategists expect further weakness," Cooper said. "Nevertheless, it would be healthier for the longer-term trend if prices consolidated recent gains rather than continuing to move sharply higher."

Precious metal refiner Heraeus said the yellow metal is overbought and may experience a pullback in the near term.

The view is shared by Cooper, who said gold prices are "technically overbought."

"But given the speed of the recent rally, temporary pullbacks amid profit-taking become increasingly likely, particularly amid bouts of USD strength," Cooper said. "However, such pullbacks are likely to be viewed as buying opportunities and thus be short lived."

Gold boosted by ETF inflows

In the meantime, the yellow metal continues to be boosted by ongoing ETF inflows, Commerzbank's Fritsch said.

"They continued for the 28th day in succession yesterday, which means they are just one day from matching the record set between the end of April and the beginning of June," Fritsch said. "There is little at present to suggest any end to the soaring prices."

ING analysts said that a plunge in the dollar has been a major driver for giving further support to gold.

"Investors continue to pile into gold ETFs, with holdings having increased by more than 820,000 oz over the last week, leaving them at a record 108.51 million oz," ING said.

"Given that low rates and a weaker USD are likely to persist, we believe that there is still further upside for gold prices."

Gold ETFs inflows continued to surge, with gold ETF holding on August 5 at 108.5 million oz, up 0.3 million oz day on day.

UBS analysts said despite gold being at a record high, "we see further upside ahead for the gold price given that we expect US real rates to fall further, the US dollar to continue weakening, and equity market volatility to persist."

"Our base case is around $2,000/oz in 2H20, but prices could overshoot in short term—our risk case is $2,300/oz," UBS said..

Analysts at Bank of America said the pandemic is delivering a continuous boost to the yellow metal due "to increased savings, growing inequality, vast capital destruction, declining productivity, rising public debt levels, and, most importantly, falling equilibrium real interest rates."

"In addition, we believe that a clouded geopolitical chessboard further supports the case for our $3,000/oz forecast over the next 18 months," Bank of America said.

The gold spot price, as of 1200 GMT August 5, stood at around $2,043/oz.