Gold may touch all-time high as challenges mount for global economy

Ravindra Rao

Everything seems to be working in favour of gold, heightening market interest in the commodity. Gold is trading near $1,870 per troy ounce, testing the highest level since 2011.

The metal has risen more than 23 percent this year, 5 percent of which has come in July. With price now holding above $1,850, market players are expecting the metal to test the next key level of $1,920 and the record high set in 2011.

Gold has been on a rise since the start of the year but picked up momentum lately amid culmination of a number of positive factors. The metal has benefitted from weakness in the US dollar, strong ETF inflows, continuing stimulus measures, rising virus risks and an increase in geopolitical tensions.

The US dollar index is near March lows amid weakening outlook for the economy on back of rising virus cases. The currency may remain under pressure unless US economic recovery picks up pace.

Gold holdings with SPDR ETF are at the highest level since March 2013 as investors continue to seek safety of gold amid increasing challenges to the global economy. Investors may continue to put in money in the metal till the upward momentum is intact.

Earlier this week, European leaders overcame their differences to agree on a 750-billion euro rescue fund while US policymakers are working on an additional stimulus package. With increasing challenges to the global economy, governments and central banks may continue to step in.

Virus cases are rising globally and especially in the US while vaccine trials have shown progress but there is still no clarity on when, and if, a treatment will be found.

Tensions are growing between the US and China and China and other countries over issues ranging from handling of virus outbreak to Hong Kong security law. Tensions are unlikely to subside soon and may impact the partial trade deal.

The huge money infusion by central banks and governments is chasing all asset classes and we are seeing price gains across commodities and equities as well as gold.

With the huge investor interest in the metal, it is highly likely that it may soon breach the $1,900 level.

The biggest concern, however, is that higher prices may further dampen the consumer demand.

Indian gold prices have breached Rs 50,000 per 10 gram level for the first time while economic growth has weakened significantly.

China, a major bargain buyer in the commodities market, has significantly increased imports of commodities in the last few months, to benefit from lower prices. However, China’s gold import numbers show that buying interest is quite weak.

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