The gold price has been rising, breaking over $2,000 per ounce and stimulating debate on how far further it can go. Traditionally gold has been an important portfolio insurance asset for HNW individuals. We take a look at some firms' thinking.
Gold prices have risen above $2,000 per ounce this week and the rally has further to run against a background of worries about the economic and markets outlook, strategists say.
The yellow metal’s rise in recent days – generating media attention – has come at a time when a combination of forces have played to its “safe haven” status. Large injections of fresh credit by central banks (“quantitative easing”) and concerns about equity market returns and a possible further drop have bolstered the metal.
“Investors have looked to gold for two main reasons. First as a safe haven during the COVID 19 crisis, helping to protect portfolios against the potential impact of the recession on corporate earnings and therefore risk assets such as equities or corporate bonds. Second, it is seen as a hedge against inflation: if the economic impact of the crisis proves short-lived, with the degree of stimulus and the size of government debts then there is a risk that inflation could return and a real asset such as gold is therefore appealing,” Chris Mellor, head of EMEA ETF Equity & Commodity Product Management, Invesco, said.
The firm said that its Invesco Physical Gold ETC has pulled in more than $3.5 billion of inflows this year - more than a quarter of all flows into European domiciled gold ETCs - and is now Invesco’s largest European product with $13.5 billion of assets under management.
Jon Deane, who runs InfiniGold, a firm digitalising the gold market, expects the price to rally to a corridor of $2,500-$,3000 over the medium term. (Deane is former JP Morgan managing director and head of commodities trading in the Asia-Pacific region.)
Societe Generale has reportedly stated (source: Bloomberg) that gold and US stocks will move in divergent directions after having been in lockstep over the past three months. If the global economy weakens and lockdowns return, equities will sag but the gold price will hold ground, the French bank was quoted as saying.
“While the correlation between gold and equities has turned unambiguously positive since the March lows in risk assets, another serious bout of risk aversion could cause the performances of equities and gold to diverge,” SocGen strategists, including Jitesh Kumar, wrote in a note dated 4 August.
JP Morgan is upbeat on the gold price outlook (source: Barron’s). The US bank has increased the near-term gold price forecast from $1,850 an ounce to $2,000. The analysts kept their long-term gold price view at $1,600/ounce.
This publication recently spoke to the World Gold Council, the industry group, and other players in the market about the gold market and the factors pushing it. Lombard Odier, the Swiss private bank, recently explained why the gold price has been rising.