(Bloomberg) – Now it’s easy to forget, but there was a time early in the pandemic in the gold price was in free fall.
The pandemic of 2020 soon showed as the driving force behind one of the manifestations more ferocious than the gold market has seen.
On Friday, at the close of trading in New York, the bullion rose strongly to $ 1,902 per ounce, a 30% higher than the minimum reached in march. Was to a step from the historic high of 2011.
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The coronavirus has unleashed a torrent of forces that are conspiring to feed the incessant demand for the perceived safety of the agitation that provides the gold.
There is the fear of more locks ordered by the government. And the decision of the politicians to push stimulus packages, unprecedented. In addition, the decision of central bankers to print money faster than ever before to fund this expenditure.
Also have to add the fall of the yields of the bonds adjusted to inflation in negative territory in the U.S. in Addition to the sudden fall of the dollar against the euro and the yen; and growing tensions between the united States and China.
All of these things, together, have caused concern in some financial circles of a stagflation.
The main driver of the last gold recovery “has been the real rates that continue to fall precipitously and show no signs of relief in the short term.” Said by phone Edward Moya, senior market analyst at Oanda Corp.
The gold is also attracting investors worried that stagflation can win and probably ensure even more accommodation from the Federal Reserve”.
The price of gold rises. Source: Bloomberg
Promising future of the Gold
Bond markets, americans have been a driving force behind the race to the gold. The same is to serve as an attractive hedge, as the yields of the Treasury bonds that eliminate the effects of inflation fall below zero. Investors seek safe havens that do not lose value.
The mania in gold this time has come to Main Street. Retail investors have helped to put in place the holdings in ETF backed by gold, with 18 consecutive weeks of gains, the longest streak since 2006. Meanwhile, gold recorded its seventh winning weekly the Friday. Analysts do not expect the increases to end soon, as reported by the agency Bloomberg.
“When interest rates are zero or almost zero, then the gold is an attractive means because you do not have to worry about do not get interest on your gold.” Said Mark Mobius, co-founder of Mobius Capital Partners, in an interview with Bloomberg.
Analysts have been predicting big gains for gold during several months. In April, Bank of America raised its price target for gold to 18 months at $ 3,000 per ounce.
The bold prediction from the Bank of America was made after gold prices fell initially in march, when investors sought cash to cover losses in assets of higher risk.
Prices recovered quickly after a surprise cut in the benchmark rate of the Federal Reserve, and the signs that the economic cost of the coronavirus would lead to efforts to massive stimulus by global governments and central banks.
This is not the first time that the gold gets help from the stimulus programs of the central bank. From December 2008 to June 2011, the Fed bought $ 2.3 trillion of debt and kept borrowing costs near zero percent in an attempt to prop up the growth, helping to send bullion to a record high of $ 1,921.17 in September of 2011.