The price of gold rocketed to its highest level ever on Monday as the dollar continues to weaken and tensions between US and China showed no signs of abating, pushing investors towards safe haven assets.
The precious metal was up 2% just shy of $1940 per ounce as of 5.50 am. ET. Last, week gold breached the $1900 mark and ended Friday at its highest level since 2011, when the previous all-time high was reached.
Naeem Aslam, chief market analyst at Avatrade, said: “Today it is all about gold prices and bulls are celebrating the fact that the gold price has hit an all-time high.”
He added: “The next big target is the 2,000 level and this can happen this week as we have the Federal Reserve's meeting. The anticipation is that the Fed is going to send another dovish message and that is likely to bring more weakness in the gold price.”
Gold could rise to $2,000 after this week's Fed meeting
A Federal Reserve meeting will conclude on Wednesday, and while markets are not predicting any changes to rates, investors will be looking closely to see whether the central bank will enact any further stimulus measures, something which could add further strength to gold prices.
Mark Haefele, chief investment officer UBS Global Wealth Management, said: “While we think gold will continue to be supported by rising geopolitical tensions, in our view the primary drivers of the gold price are its negative correlation to real interest rates and the dollar.”
The US dollar index has also fallen to its lowest point since the start of the year in recent days. The greenback is considered the ultimate safe haven currency, and a lower dollar has lured investors to rush to gold to maximise returns during the pandemic.
Near-zero interest rates, and a spate of stimulus measures has caused gold to appreciate relative to the dollar. Gold usually fares well during times of economic uncertainty and distress.
“We think these three factors, in combination with limited supply growth as miners continue to restrain capital spending, will drive gold prices higher,” Haefele added.
US-China tensions have resurfaced in recent months due to Hong Kong legislation and a blame-game between who is responsible for the coronavirus outbreak.
US-China tensions is pushing the gold price up
Last week tensions between the world's two biggest economies flared up after China ordered the closure of the US consulate in Chengdu following a similar decision by the US to close the Chinese consulate in Houston.
On Monday, American diplomatic staff departed their consulate in Chengdu, after a 72-hour deadline given to staff expired.
Jeffrey Halley, senior market analyst at OANDA, said: “I expect that gold will take a lot less time to reach $2000.00 an ounce, than it did to move from $1820.00 an ounce to $1920.30 an ounce. That gold has risen seven dollars an ounce, since I started writing this paragraph, is testament to that.”
Tim Shaler, chief economist at iTrust Capital attributed gold's bullish momentum to investors' expectations of inflation increasing.
Gold investors think inflation will rise
“With talk of another $1 trillion in stimulus in the US and the prospect of a total over 2 trillion euros in short- and long- term stimulus spending in Europe, gold investors are seeing the incentive for future inflation going up,” he said.
He explained historically, governments would borrow money and repay the debt with inflation, hence lowering the real cost of the repayment.
Shaler added: “In the US, the inflation of the 1970s came 30 years after the 1940s, when War Bonds were coming due.” Gold is assumed by asset allocators to have a negative correlation to US large cap stocks — making gold a great diversifyer for most investors' long term portfolios, it is no wonder gold prices are going up versus the dollar and other currencies.”