A lull in the financial market crisis, brought on by the COVID-19 pandemic, is prompting investors to jump back into gold and reclaim the safe-haven asset and prepare for any potential second wave, according to market analysts.
The gold market is seeing strong demand Monday with prices at one point up more than 3% on the day. Analysts say the rally is once again putting the spotlight on $1,700 with expectations that the precious metal could hit a new multi-year high this week. June gold futures last traded at $1,688 an ounce, up more than 2.5% on the day.
The rally in gold comes as equity markets are also seeing a strong rally. The S&P 500 is up more than 4.5% Monday.
Jim Wyckoff, senior technical analyst at Kitco.com, said the equity rally is an indication of improving investor sentiment as hope grows that the coronavirus outbreak may be de-escalating. With the panic subsiding, investors are now turning to more long-term issues, he added.
“This somewhat encouraging news is a ‘Goldilocks’ scenario for gold, as buyers are now more confident to step in and purchase the safe-haven metal, while knowing there are still very tough times ahead, including the specter of problematic inflation farther down the road,” he said.
Phillip Streible, chief market strategist at Blue Line Futures, also said that a lot of the broad market-panic selling seen last month appears to be over. Last month, financial markets were hit with massive volatility as governments around the world closed all non-essential businesses and requested people stay in their homes to slow the deadly spread of the coronavirus.
At the same time, governments and central banks around the world have thrown massive amounts of money into financial markets to support consumers and the global economy.
Streible said that with the panic over, investors are now focused on the inflationary threat of all the money sloshing through financial markets.
“Hoarders are going from toilet paper and into gold,” he said. “I think it ’s only a matter of time before we see $1,700 break and then you will see a huge move higher as short sellers are squeezed.”
Streible added that he suspects that investors are also using the rally in equity markets to raise some capital and buy gold. “The panic margin calls has passed for now so people are buying gold again as a safe-haven,” he said.
Kevin Grady, president of Phoenix Futures and Options LLC, said that gold ’s latest rally puts long-term fundamentals in sharper focus. He added that he is bullish on gold as equity markets have been backstopped by massive money printing and extremely loose monetary policies.
“The environment is ripe for gold to rally,” he said.
Grady added that gold will also be attractive as he expects equities to remain in a bear market.
“Equities are up today but in the long run I don ’t think the market has found its footing yet,” he said. “We don ’t really know how long people will be forced to stay at home. I don ’t think we should be looking at an economic recovery until at least the fourth quarter.”