Gold bangles sit on display inside a Titan Co. Tanishq jewelry store in Mumbai, India, on Friday, Oct. 25, 2019. (Photo: Dhiraj Singh/Bloomberg via Getty Images)
The Covid-19 pandemic, the lockdown measures to contain it and the policies taken to stimulate reeling economies have boosted the fortunes of gold. The precious metal may hold its newfound glitter for the remainder of the year, but a collapse in demand from jewellers, industry and central banks could contain gains.
Gold is on a bull run of note. Its price in the year to date is up more than 16%, near eight-year highs at over $1,770 an ounce. And with the number of Covid-19 infections globally spiking, notably in the US, the precious metal looks set for more gains.
This comes as no big surprise. Gold’s appeal as a “safe haven” is boosted in times of uncertainty, and 2020 has had more than its share of that. Meanwhile, global stimulus measures to inflate cratering economies have created a flood of green that can be transformed into gold.
“The… sharp economic contraction and an uncertain outlook have encouraged investment in safe-haven assets. The monetary and fiscal policy response seen around the world, unprecedented in both magnitude and structure, have also benefited gold, fuelling strong inflows of institutional money,” consultancy Metals Focus said in a recent report.
“Looking ahead… we are confident that the macroeconomic backdrop will continue to be positive for gold for the remainder of this year. Even under the most optimistic scenarios for an economic recovery, risks will abound and ultra-loose monetary and fiscal policy will continue. We thus expect professional investors will remain buyers. This is the main assumption behind our forecast that the price will test all-time-highs before the end of the year and the average for 2020 will be 22% higher y/y, at $1,700,” it said.
However, this has all been driven by investors and funds, so-called “institutional inflows.” Physical demand has been slammed by the pandemic as economies and the income of consumers contract.
“The outlook seems less rosy for gold’s physical demand,” Metals Focus said. It forecast a global fall in gold demand for jewellery fabrication of 25% in 2020 to just under 1,600 tonnes, the lowest since 1987.
“Almost all countries are slated to see double-digit losses, with emerging markets hit worst. Much of the damage is due to Covid-19, either directly through retailing restrictions or indirectly through damage to global GDP and its added fuel for the gold rally. The largest fall is India’s -39%, where a long shutdown is expected to hit GDP growth and discretionary spending. Our forecast for a 25% fall in China assumes that, even as life is already moving back to normal, the economic slowdown will still weigh on jewellery sales.”
Industrial and central bank demand for gold as a reserve are also predicted to ebb in 2020.
Still, gold has a lot going for it at the moment, including the current occupant of the White House in America, whose erratic behaviour helps to keep the metal’s price on the boil.
That has the added spin-off of a higher gold price, which will be welcomed by parts of Donald Trump’s conservative political base, who have long seen gold as an almost magical asset. And on a global level, the pandemic is shaking investor confidence in other asset classes, sparking a flight to safe havens.
Midway through the year, it might be a safe bet to say that gold has yet to scale its 2020 peak. BM
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