Gold extended a surge toward $1,600 an ounce after the Federal Reserve took unprecedented measures to protect the U.S. economy from the coronavirus shock, with Goldman Sachs Group Inc. saying bullion’s probably at an inflection point and it is time to buy.
The precious metal jumped, rallying with risk assets, after the U.S. central bank said on Monday it would buy unlimited amounts of Treasury bonds and mortgage-backed securities to keep borrowing costs low. The Fed also set up programs to ensure credit flows to corporations as well as state governments.
The traditional haven is seeing a resurgence after declining over the last two weeks, when investors had favoured the dollar and sold the precious metal to raise cash.
Goldman said the Fed’s move would help alleviate the funding stress that’s driven gold lower, and investors would now pivot to focus on the expansion of its balance sheet, just as they did in 2008. Goldman also highlighted the rise in deﬁcits in developed economies, as well as “issues around the sustainability” of European monetary union, according to a note.
“We believe this will likely lead to debasement concerns similar to the post-GFC period,” analysts including Jeffrey Currie and Mikhail Sprogis wrote in the March 23 note, referring to the global financial crisis. “Accordingly, we are likely at an inflection point where ‘fear’-driven purchases will begin to dominate liquidity-driven selling pressure, as it did in November 2008.”
Spot gold climbed as much as 2% to $1,584.51 an ounce, and was at $1,573.89 at 7:07 a.m. in London, following a 3.6% jump on Monday. The Bloomberg Dollar Spot Index dropped after hitting a record a day earlier.
Goldman reaffirmed its 12-month target for bullion to advance to $1,800 an ounce; spot gold hasn’t traded at that level since 2011, the year prices hit an all-time high. The lift from the Fed’s move would also offset the negative impact of weaker emerging-market demand for bullion, the bank said.
There was also a vote of confidence in bullion from veteran investor Mark Mobius. The haven’s recent sell-off alongside risk assets such as stocks and oil was a sign of pure panic, with investors selling everything as the pandemic spread, Mobius told Bloomberg TV in an interview.
“I think it’s a mistake,” he said. “People should have gold and this may be a good time to increase holdings in gold — in fact I’m thinking that myself.”
Among the other main precious metals, silver added more than 2%, platinum advanced more than 3%, and palladium surged 6%. The two platinum group metals are extending gains amid the broader rise in precious metals.
Separately, South Africa, which accounts for 75% of the world’s platinum and 38% of palladium supply, said it will close its mines for 21 days as part of a nationwide lockdown.
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