(Bloomberg) – Now it’s easy to forget, but there was a time early in the pandemic when the price of gold was in freefall.
The 2020 pandemic soon showed itself as the driving force behind one of the fiercest demonstrations the gold market has ever seen.
On Friday, at the close of business in New York, the bullion rose sharply to $ 1,902 per ounce, 30% higher than the low reached in March. It was one step away from the historical record of 2011.
Coronavirus drives the price of Gold
The coronavirus has unleashed a torrent of forces, which are conspiring to fuel the relentless demand for perceived security from the turmoil that gold provides.
There is a fear of more government-ordered blockades. And the decision of the politicians to push unprecedented stimulus packages. Also, the decision of central bankers to print money faster than ever to finance that spending.
Also to be added is the drop in inflation-adjusted bond yields in negative territory in the US Added to the sudden drop in the dollar against the euro and the yen; and growing tensions between the United States and China.
All of these things, taken together, have raised concerns in some financial circles of stagflation.
The main driver of the latest gold recovery “has been real rates that continue to plummet and show no signs of relief anytime soon.” Edward Moya, senior market analyst at Oanda Corp. said on the phone.
Gold is also attracting investors “concerned that stagflation will win and likely guarantee even more Federal Reserve accommodations.”
Gold promising future
US bond markets have been a driving force behind the race to gold. It is serving as an attractive hedge as Treasury bond yields that eliminate the effects of inflation drop below zero. Investors seek safe havens that don’t lose value.
The gold mania right now has hit Main Street. Retail investors have helped jump-start gold-backed ETF holdings, with 18 consecutive weeks of earnings, the longest streak since 2006. Meanwhile, gold posted its seventh weekly gain on Friday. Analysts do not expect the increases to end soon, according to the Bloomberg agency.
“When interest rates are zero or near zero, then gold is an attractive medium because you don’t have to worry about not getting interest on your gold.” Mark Mobius, co-founder of Mobius Capital Partners, said in a Bloomberg interview.
Analysts have been predicting huge gains for gold for several months. In April, Bank of America raised its 18-month gold price target to $ 3,000 an ounce.
Bank of America’s bold prediction came after gold prices initially fell in March, when investors sought cash to cover losses on higher-risk assets.
Prices recovered quickly after a surprise cut in the Federal Reserve benchmark rate, and signs that the economic cost of the coronavirus would lead to massive stimulus efforts by global governments and central banks.
This is not the first time that gold has been helped by central bank stimulus programs. From December 2008 through June 2011, the Fed purchased $ 2.3 trillion of debt and kept borrowing costs close to zero percent in an attempt to shore up growth, helping to ship bullion to a record $ 1,921.17 in September 2011. .