Gold futures ended higher on Friday, with demand for the metal boosted by investors worried about the rise in COVID-19 cases in China and the US.
Gold concluded the week on a positive note as “rising coronavirus cases in China and the United States accelerate the flight to safety,” said Lukman Otunuga, senior research analyst at FXTM.
Perhaps a bullish forecast for gold prices from Goldman Sachs added to the enthusiasm for the metal.
The US Dollar Index was up 0.3% for the week with most of that coming on Friday as investors looked for some safe haven protection, though the yield on 10 year bonds remained steady on Friday at 0.70% from the previous week’s 0.704%.
On Comex, August gold jumped $US21.90, or 1.3%, to settle at $US1,753 an ounce, the highest finish for a front month contract since mid-May, according to FactSet.
Gold ended around 0.9% higher for the week.
Comex July silver also ended higher, up 34 cents, or 1.9%, at $US17.847 an ounce, with prices posting a weekly rise of 2%.
Comex July copper gained 0.9%, at $US2.611 a pound—ending 0.4% higher for the week. Copper is up more than 20% in the last three months.
Meanwhile in a research note issued on Friday, Goldman Sachs raised its 12 month forecast for gold prices by 11% to $US2,000 an ounce (from $US1,800 an ounce) citing low interest rates and concerns over currency debasement (which is a false concern).
It also lifted its three-month view to $US1,800 from $US1,600 and its six-month forecast to $US1,900 from $US1,650.
“Gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates,” according to analysts at Goldman Sachs.
“Simultaneously, we see a material comeback from [emerging market] consumer demand boosted by easing of lockdowns and a weaker dollar.”
The analysts said “fear” driven investment demand lifted gold by 18% this year, but the negative shock to “wealth” produced an 8% “drag.”
They estimated the net impact at 10%, which compares with with gold’s year to date rise of 13%.
“We see the economic dislocation of the COVID-19 shock as similar to war, where governments force the reallocation of labor away from the market equilibrium, toward the production of armaments, or social distancing,” Goldman said.
“Following World War II, governments were willing to tolerate higher inflation, driven by pent-up demand, in part to help manage their post-war debt loads.”
However, the analysts said that for gold to move materially above $US2,000, inflation will need to move above the Federal Reserve’s 2% target with a muted monetary-policy response, Goldman said.
Looking at silver, Goldman cited two primary factors behind its upward revision to silver prices.
Goldman revised its silver forecasts up to $US19 in three months, $US21 in six months and $US22 in a year, compared to $US13.50, $US14 and $US15 previously.
“First, coordinated global stimulus will help generate growth in industrial production and global economic activity,” Goldman said. “Relative to gold, silver demand is more closely tied to industrial production, accounting for 50% of its demand….Silver also stands to benefit from growing investment in solar power.
“Secondly, we have argued in the past that silver is the precious metal of second choice after gold. This means that when interest in precious metals is moderate, investors may still add to gold but silver often gets overlooked.
“However, when interest in precious metals is surging (as it is now), a lot of investors historically diversify part of their gold purchases with silver. In this environment, silver can outperform gold because it is a smaller market and moderate relocation into it can lead to a material price spike,” Goldman analysts wrote in Friday’s report.
