Gold Prices Target $1,900, Oil Plunges

Gold Bars

Gold Prices

Gold prices hit their lowest point since April 9 at the end of last week due to reports of new treatments for COVID-19.  The price was back to approaching $1,700 by midday Monday though, hitting $1,692, with futures also climbing to $1,709.

That could just be the beginning of a continued upswing for precious metal investors however, with TD Securities issuing a target of $1,900 an ounce in a mere three months from now.  The reasons for the jump are primarily the anticipation of continued safe-haven demand amid market uncertainty and the continued stimulus efforts of central banks.

There is also the belief among analysts that the market is currently undervaluing gold, especially when taking into account the expected long-term inflation and the overall scale of global quantitative easing.

Bart Melek, TD Securities’ Head of Commodity Strategies, explained how “The Fed’s latest QE program is now the largest on record. Of course, there is a well-known relationship between QE and lower real rates, such that it ultimately suppresses real rates by lifting inflation expectations at a faster pace than nominal rates … The Fed and other central banks are likely to keep their uber-easy policies in place for far longer than anticipated, following a decade of below-target inflation and a newfound interest in asymmetric inflation targeting,”

Melek had good news for gold investors moving forward though, saying that “Gold has been very much subject to what has been happening in the broader market … There will be a positive view of the economy going forward as things open up and given all the massive amounts of monetary and fiscal stimulus, the market will turn to gold as a protector against inflation.”

He added that he sees the price of gold reaching $2,000 an ounce by the end of next year.  The key will be at the point when the U.S. begins to see some economic stability again, but while interest rates are still low.  That’s when inflation will come into play. The bigger the problem that inflation is, the higher gold prices will go. Melek sees gold climbing all the way to $2,100 if the inflation is severe enough.

Falling Oil Prices Arrow

The precious metal has also been helped by a fading dollar and a freefall of crude oil prices.  These factors indicate that investors’ appetite for risk is dwindling, and has helped overcome the optimism concerning a possible vaccine and the easing of global lockdowns, both of which have had a negative impact on the bullion markets recently.

Oil Prices

Oil prices, in particular, have had a tremendous positive impact on gold.  The crude oil market is continuing to experience astounding losses, with prices at their weakest levels on record.  In fact, experts are not ruling out negative prices. Global lockdowns have helped kill the demand for a commodity that was already hurting due to a price war between Russia and Saudi Arabia.  OPEC+ recently cut a major deal to limit output and reduce oversupply problems, but that now seems to be a case of too little and too late. Seeing a leading commodity collapse has only driven up the safe-haven demand for gold among investors, amid a market that has already been plagued with anxiety.

In the very short term though, one can still expect the bullion market to still be somewhat sluggish as investors brace for quarterly earnings reports.  Roughly 20% of the S&P 500 will report earnings this week, and analysts are expecting the worst results year-over-year since 2009.

Wall Street stumbled out of the gate to start the week as well, even before the release of any earnings reports.  Energy shares in general were hit hard by the crash in oil prices, and the market in general saw a wave of pessimism wash over it as more and more economic data is expected that will detail the severity of the pandemic’s impacts.

The dollar had been gaining momentum in recent weeks thanks to bits of positive news regarding the coronavirus.  Gilead Science’s experimental drug remdesivir has seen some success in combating the virus, but it is far from being fully vetted and tested yet.  Similarly, Novartis said it is now conducting late-stage trials of hydroxychloroquine in patients with COVID-19. The start of roll-backs of quarantine restrictions in some European nations, including Germany, boosted the dollar as well, as did hopes that the global containment measures could soon start to be lifted.

That momentum was short-lived however, and the dollar’s gains started to fade by lunchtime on Monday.  Now, commodity experts are looking to the longer term, where the uncertainty around restarting frozen economies seems set to continue for at least a few more months.  Couple that with the ever-increasing belief that we have now entered a global recession, and one is left with strong support for gold in the medium to long term. Craig Erlam, Senior Market Analyst at Oanda, supports this line of thinking, saying how “the longer-term outlook for the yellow metal remains bright though given the current environment.”

Long story short, experts expect the price of gold to continue to stay strong as long as the coronavirus is dominating the headlines.  Fears of a global recession will persist along with it, as interest rates approach zero or lower. All of this is great news for gold, and the bullish signals show no signs of letting up.

More and more savvy investors are turning to gold as a safe haven, and it’s not too late to get in at what is still a relatively low level.  Even if the coronavirus is eradicated in a few months, which is now the best-case scenario, many of the world’s top economies are still in serious trouble and becoming more and more susceptible to inflation.  By investing in gold, you’re not only protecting your portfolio from the volatility of the markets, but you’re setting it up for significant future growth as the global economy inevitably rebounds post-pandemic.


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