- Gold prices hit 7-year high as investors take refuge in safer assets amid coronavirus-fueled sell-off.
- Some analysts say the “level of fear” in the markets could push gold prices to above $2,000.
- Assets such as government bonds and gold are generally viewed as safe havens for investors. When there is uncertainty and challenging market conditions, investors tend to rush their investments from riskier assets to havens.
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Gold prices jumped above $1,700 on Monday, hitting a seven-year high as a coronavirus-fueled sell-off pushed investors into safer assets.
However, analysts have said that the precious metal could continue to climb higher.
“Gold could go through $2,000 this year, especially post the Federal Reserve’s emergency action last week and the follow through we expect from them,” Clark Fenton, portfolio manager of diversified returns at RWC Partners, said in a research note on Monday.
“It may look like gold has already rallied strongly, but investors have not missed their opportunity – we think it has a long way to go from here, not simply because it’s commonly viewed as a safe haven but because the world has now changed fundamentally. We’ve never seen real rates this low globally, so investors will be forced to search beyond bonds to preserve their wealth,” Fenton added.
Assets such as government bonds and gold are generally viewed as safe havens for investors. When there is uncertainty and challenging market conditions, investors tend to rush their investments from riskier assets to havens. At 9:50 a.m. ET, gold traded a little under $1,700, down 1.25%.
In the current market conditions, gold has found itself back near highs as stocks and bonds across the globe continue to remain under pressure. Adrian Lowcock, head of personal investing at Willis Owen, described the next few weeks as “potentially critical” for investors, especially as the spread of coronavirus and the way governments and businesses deal with it evolve.
Lowcock forecast that the existing level of fear in markets “could push gold to $2,000.”
“What we can see is the level of fear in markets is at extremes we haven’t seen since the financial crisis and there is very little financial institutions and professional investors can do or say in the short term to reassure markets. As such, if the situation escalates there is a very real possibility the gold price could continue its run over the past few months, and it could even break through the $2,000 level.”
On Monday, oil prices, stocks, bond yields, and cryptocurrencies plunged after Russia refused to join other oil producers in cutting its output in response to the novel coronavirus, sparking a price war.
Investors sought shelter in US government bonds, pushing up prices and sending yields lower, and are awaiting more fiscal and monetary response to the coronavirus crisis. Last week, the Federal Reserve made an emergency rate cut of 50 basis points, and investors are waiting to see if other central banks will follow its lead.
“Stepping back from recent price action, we think macro conditions continue to be positive for gold. Monetary policy is easing globally, with the Fed widely expected to cut rates further. Uncertainty remains high as the global economy contends with the COVID-19 outbreak. If anything, we think the rationale for holding gold is becoming even stronger,” Joni Teves, strategist at UBS, said in a research note late last week.