Gold rips up record book as $2,000 test looms in hunt for haven

Gold’s unrelenting march higher shows no signs of slowing after a plunge in the dollar swept prices past the previous high set in 2011 and put the metal on track for even bigger gains.
Bullion’s surge came as a gauge of the U.S. currency sank to the lowest in more than a year, the latest in a long line of bullish factors – including negative real rates in the U.S. and bets the Federal Reserve will keep policy accommodative when it meets this week – that are pushing prices ever higher.
With the world facing an extended period of unprecedented economic and political turmoil, gold’s now got $2,000 in its sights. Some in the market suggest the haven could rise even beyond that.
Nascent signs of gold’s record-breaking ascent began to show in mid-2019, when the Fed signaled a readiness to cut interest rates as uncertainty – primarily about the impact of the U.S.’s trade battles – clouded its outlook. The rally gathered pace in early 2020 as geopolitical tensions rose and the coronavirus outbreak hurt growth worldwide, pushing governments and central banks to unleash vast amounts of stimulus, and sending real interest rates slumping further into negative territory.
“Strong gains are inevitable as we enter a period much like the post-GFC environment, where gold prices soared to record levels as a result of copious amounts of Fed money being pumped into the financial system,” said Gavin Wendt, senior resource analyst at MineLife Pty. A weak dollar and negative real rates are providing further impetus. Gold may consolidate before setting its sights on $2,000 and above in coming weeks, he said.
Investment demand has been unrelenting. Holdings in gold-backed exchange-traded funds have beaten all-time highs nearly every month since late last year and inflows this year have topped the record annual total set in 2009. The additions make up roughly one-fifth of expected mine supply for the year, according to research group Metals Focus.
Gold’s been drawing investors even as equities climbed – with the exception of a sharp selloff in March as traders liquidated bullion holdings to cover losses in other markets – and it’s U.S. bonds that have been the key metric to watch. The metal is serving as an attractive hedge as yields on Treasuries that strip out the effects of inflation fall below zero.
Inflation also plays an important role in looking at prices in an historical context. Spot gold traded as high as $1,945.26 yesterday, topping its previous record by more than $20. Spot silver jumped as much as 8.1% to $24.6031 an ounce, the highest since 2013.
When adjusted for inflation, bullion remains lower than its 2011 high and far below the historic peak in 1980, in the wake of the second oil price shock. Bloomberg