Gold closes near nearly eight-year highs
Gold prices closed practically unchanged on Monday, close to a nearly eight-year high reached last week. This is a result of global coronavirus cases hitting hopes of an economic recovery.
Spot gold fell by 0.1% to $1,769.52 an ounce, to $9.54 from the $1,779.06 it touched on Wednesday. This was its highest level since October 2012. Meanwhile, US gold futures gained 0.1% to $1,781.20.
Coronavirus cases have increased in the United States, where California ordered bars to close on Sunday, and Washington state paused plans to reopen the economy. At the same time, infection rates continue to rise in countries like Brazil and India.
Michael Hewson, a chief analyst at CMC Markets UK, thinks that the catalyst for gold to hit $1,800 an ounce is already here. Growing cases in the United States and concerns about the second wave in Europe and Asia are likely to slow down any potential rebound in the economy. That will make gold a high-demand asset.
The steady spread of coronavirus limited optimism about a rapid recovery in the global economy. This sent global stocks down to two-week lows.
Among other precious metals, palladium gained 2.5% at $1,906.15 an ounce. Meanwhile, platinum rose 2.1% to $807.39 an ounce and silver gained 0.1% to $17.77 an ounce.
Gold is a great protective shield against current economic and social ups and downs
Hussein Sayed, a chief market strategist from FXTM, noted that investors might find the precious metal a better alternative to many other asset classes in today’s macroeconomic environment.
The stock market recovery is losing steam, and there are not many reasons to keep the bull market going any longer, Sayed said. Central banks worldwide have already reduced stock prices, and another big round of stimulus is unlikely.
Besides, the United States’ 10-year real return, which takes inflation into account, is in negative territory. Real yields in Europe are even lower, Sayed continued. The investment strategist called this situation terrible news for people approaching retirement as pensions will fall in value.
And with the trillions of dollars in stimulus from the government and the Fed since the beginning of Covid-19, it should come as no surprise if inflation starts to rise. That will be another blow for savers.
All of this should make gold protection against negative returns, currency devaluation, an unexpected increase in inflation or deflation, poor economic performance, and shocks in the stock markets, Sayed concluded.
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