SINGAPORE (Mar 24): Now may just be the time to buy gold as prices surge to an inflection point, according to analysts at Goldman Sachs.
Spot gold climbed 3.7% - the highest percentage gain since 2016 – while US gold futures rose 1.6% to some US$1,600 ($2,321.40) per ounce.
The jump comes after the US Federal Reserve’s unprecedented measures announced on Mar 23, aimed at relieving the ailing American economy.
These include buying back unlimited amounts of treasury bonds and mortgage-backed securities to keep borrow costs low, as well as programmes enabling credit flows to corporations and state governments.
Demand for the safe-haven asset has been picking up since the Fed’s rate cut two weeks ago, with trades amounting to over US$260 billion per day globally as of March 18, the World Gold Council (WGC) notes in its investment update report.
Of this, sales are concentrated on derivatives in exchanges and over-the-counter purchases. Meanwhile, gold-backed exchange-traded funds (ETFs) hit a total trade of US$11.5 billion, with most funds coming from outflows.
The recent trend comes after declining sentiments on the precious metal as investors sold it to raise cash.
“In these uncertain times, it is not too much of a surprise to see a move away from risk assets towards safe havens,” note Warren Patterson and Wenyu Yao of ING Bank’s commodities strategy division.
“This is evident when looking at the copper/gold ratio, which has fallen below the levels seen during the [2008] Global Financial Crisis,” they add.
However, the duo caution a drop in the supply of physical gold as Swiss refiners, such as Valcambi, Argor-Heraeus and PAMP, which contribute to almost a third of total annual gold production, have suspended operations for at least a week.
Even so, the WGC notes the previous metal will be an effective portfolio hedge for investors, in this uncertain time. “So far, gold has played an important role in portfolios as a source of liquidity and collateral. And we expect it will serve as a safe-haven in the longer-term,” observes WGC.
Drawing reference to the GFC, the council notes that gold prices had initially fallen between 15%-25% but eventually was one of the few assets, alongside US treasuries to post positive returns.
For now, prices of the precious metal are slated to fluctuate more as central banks come forth with rate cuts and quantitative easing measures. Even so, the WGC says the safe-haven asset is still a worthy investment as “the long-term implications of an environment combining high risk and low opportunity cost should support gold investment demand”.
