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Gold’s performance in the weeks since Covid-19 became a pandemic has been anything but stellar. Prices were volatile, briefly turning lower for the year before climbing to their highest level since late 2012.
The precious metal has been torn between its potential as a haven investment and a mad scramble to sell the tangible asset in a bid for cash to cover losses in the stock market.
“The Covid-19 outbreak has had a major impact on the gold market, bringing massive price swings as investors react to new developments related to the pandemic,” says Steven Dunn, head of exchange-traded funds at Aberdeen Standard Investments.
“Because of Covid-19, refiners were knocked offline…and the ability to move gold became a challenge as normal means of transport became almost impossible,” he says.
Read:Gold suffers pricing issues as coronavirus shuts down supply sources
The World Health Organization officially declared Covid-19 a pandemic on March 11, but gold prices didn’t immediately rally as many expected, even as the hit to the global economy became apparent with the closure of schools and businesses around the world.
Gold futures GCM20, +3.31% settled at $1,477.90 an ounce on March 18, their lowest finish year to date, before eventually moving up to an intraday high of $1,754.50 on Thursday—the highest intraday mark since November 2012.
“Gold usually goes through a shakeout of weak hands before hitting new highs,” says Jeb Handwerger, editor of Gold Stock Trades, which tracks the junior mining exploration and development sector, referring to futures traders who don’t intend to take delivery of the underlying commodity.
Year to date as of Thursday, however, gold is up more than 15%, versus a more than 14% decline in the S&P 500 index SPX, +1.44%.
“Gold is breaking out into new all-time highs against most currencies except the U.S. dollar, which is the strongest fiat currency left,” says Handwerger.
After settling at $1,752.80 on Thursday, prices now trade at about $171 an ounce away from the all-time intraday high of $1,923.70 on Sept. 6, 2011.
“A hold above $1,700 would be very constructive in terms of giving [gold] a boost up to the all-time highs,” but it will “take time” for the metal to reach those levels, says Adam Koos, president of Libertas Wealth Management Group.
“ ‘If the aftershock of the Covid-19 virus is a much deeper, wider iceberg under the surface of the economy, then I think we could see an acceleration in buying pressure’ on gold. ”
“If the aftershock of the Covid-19 virus is a much deeper, wider iceberg under the surface of the economy, then I think we could see an acceleration in buying pressure” on gold, he says.
It’s difficult to imagine an economy that flourishes through the remainder of this year, and for that reason Koos says he expects to see higher gold prices.
He’s reluctant to say prices will reach a record, but he does see a “higher probability” that prices move up to hit all-time highs than drop back toward $1,500 by year-end.
Peter Grosskopf, chief executive of asset manager Sprott, however, believes prices may rise beyond a record. “We are close followers of trading and flows in the bullion markets, as well as the underlying technical analysis, most of which point to gold over $2,000 sometime late this year or early next,” he says.
“There is too much debt at all levels. We have borrowed from the future, and there is not enough economy to pay it down. That equation requires much more financial repression going forward, and gold is a great hiding place from that process,” he says.
An opportunity in the gold-mining space is also developing. “It is a great time to buy gold equities which were sold off with general equities in the rush to meet margin calls” last month, says Grosskopf. “Their margins will be at record levels going forward.”
