Gold prices have been flying, moving to their highest levels seen in over seven years. XAU/USD has stormed ahead aggressively, smashing firmly within the $1600 price territory.
Why is Gold (XAU/USD) rallying?
Firstly, as I detailed in the JPY blog post , yesterday, given the situation economically in Japan with their large contraction in GDP, this has helped gold. There are credible reports that have detailed large Japanese funds who have been dumping local assets in favour of the precious metal.
Secondly, there has recently been renewed Coronavirus fears, this time with South Korea. Initially, earlier in the week, the country reported, the first death in the country of a person infected with coronavirus and 22 new cases bringing the total to 104.
It further escalated, as South Korean officials on Friday designated two cities as “special care zones” while its military confined troops to their bases in a desperate effort to contain the spread of coronavirus after the spike in cases. The latest reports now suggest some 52 new confirmed cases of the coronavirus, taking the national total to 156, the majority in Daegu, the country’s fourth-largest city with a population of 2.5 million.
What are investment banks saying about Gold?
Goldman Sachs in their recent research note to clients said that the outlook for lower US yields and weaker equities "creates further upside risks to our gold forecasts with gold pushing towards $1,750 should the coronavirus be contained during Q1".
They added, however, if the virus disruption stretches into Q2, "we see substantially more upside from here - towards $1,850, depending on the magnitude of global monetary policy response".
Lastly noting that "we see such a rally being driven by the continued search for yield, increased demand for portfolio diversification and higher political uncertainty" with gold being "a strategic allocation to protect a portfolio from geopolitical risks such as the current outbreak, de-dollarization and negative real yields".
Elsewhere, Citigroup in their note said they expect gold to hit $1,700 in the next six to 12 months and $2,000 in the next 12 to 24 months. Gold should perform as a convex macro asset market hedge, resilient during ongoing risk market rallies but a better hedge during sell-offs and vol spikes.
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