Gold rally gathers pace as prices move into record territory

Investors assess prospects of more stimulus to combat fallout of the pandemic

Gold’s rally gathered more force, with prices driven higher into record territory above $2,000 an ounce as investors assessed prospects of more stimulus to combat the coronavirus pandemic’s fallout, another slide in US real yields and increased geopolitical risks.

Bullion is up more than 30 per cent this year, and could extend gains as governments and central banks respond to slowing growth with vast amounts of stimulus. Federal Reserve Bank of San Francisco president Mary Daly said on Tuesday the US economy needed more support than originally thought.

However, the metal is some way off its inflation-adjusted peak, analysts pointed out. Fahad Kamal, chief market strategist at Kleinwort Hambros, said that “when you factor in inflation the all-time high of gold is about $2,500... when Soviet tanks rolled into Afghanistan in 1979”.

The haven's allure as a store of wealth is strengthening as investors face the prospect of a long global recovery, and the debasement of fiat currencies, with banks, including Goldman Sachs Group, forecasting a rally to $2,300.


"The stage has been set for gold to continue to climb higher," Paul Wong, market strategist at Sprott, said in a report. "We see increased fiscal spending ahead, extremely accommodative monetary policy in place for years and a challenging economic recovery, as stated by the Fed."

Bond market

Shifts in the US bond market have also underpinned gold’s ascent, with an added lift from a weaker dollar.

Real yields on 10-year treasuries have collapsed below zero and hit a record low below -1 per cent on Tuesday. And after sinking 3.3 per cent in July, the US currency is now lower in 2020.

Spot gold rose as much as 0.9 per cent to a record $2,036.81 an ounce, and was at $2,028.99 at 8.02am in London, while most-active futures traded as high as $2,052 on the Comex.

Spot silver climbed as much as 2.3 per cent to $26.6118 an ounce, the highest since 2013. – Bloomberg