Gold extended its rally on fresh waves of stimulus measures, with Goldman Sachs Group Inc. saying bullion’s probably at an inflection point and it is time to buy.
The precious metal is rising along with risk assets, amid renewed hopes that the U.S. Congress will pass a spending package that, together with the Federal Reserve’s massive stimulus program, could ease the impact from the coronavirus.
The traditional haven is seeing a resurgence after declining over the last two weeks, when investors had favored the dollar and sold the precious metal to raise cash. Goldman said the Fed’s move would help alleviate the funding stress that’s driven gold lower, and investors would now pivot to focus on the expansion of its balance sheet, just as they did in 2008. Goldman also highlighted the rise in deficits in developed economies, as well as “issues around the sustainability” of European monetary union, according to a note.
Spot gold climbed as much as 4.2% to $1,618.20 an ounce, before paring some of the gains. Futures in New York surged to as high as $1,693.50 an ounce.
“We believe this will likely lead to debasement concerns similar to the post-GFC period,” Goldman analysts including Jeffrey Currie and Mikhail Sprogis wrote in the March 23 note, referring to the global financial crisis. “Accordingly, we are likely at an inflection point where ‘fear’-driven purchases will begin to dominate liquidity-driven selling pressure, as it did in November 2008.”
Other precious metals also extended gains. Silver was up 4% by 12:01 p.m. in London and platinum rose 6.8%. Palladium jumped as much as 16%, the biggest intraday increase since 1998. South Africa, which accounts for 75% of the world’s platinum and 38% of palladium supply, said it will close its mines for 21 days as part of a nationwide lockdown.
Goldman reaffirmed its 12-month target for bullion to advance to $1,800 an ounce; spot gold hasn’t traded at that level since 2011, the year prices hit an all-time high. The lift from the Fed’s move would also offset the negative impact of weaker emerging-market demand for bullion, the bank said.
There was also a vote of confidence in bullion from veteran investor Mark Mobius. The haven’s recent sell-off alongside risk assets such as stocks and oil was a sign of pure panic, with investors selling everything as the pandemic spread, Mobius told Bloomberg TV in an interview.
“I think it’s a mistake,” he said. “People should have gold and this may be a good time to increase holdings in gold — in fact I’m thinking that myself.”