US-China tensions prompted gold to hit its highest ever price on Monday. Following the tit-for-tat consulate closures in Houston and Chengdu, gold reached $US1,940 per ounce, adding 2% to last week’s gains of 7%.

“The world is trying to get away from the dollar. You’ve seen a number of Chinese sources talk about the ‘de-dollarization’ and as the world tries to look for another currency besides the U.S. dollar, gold makes a lot of sense,” said Ken Hoffman, a senior expert at McKinsey.

 

Gold is viewed as a ‘safe haven’ asset that offers a way to hedge investors against falling stocks or currencies during economic and geopolitical volatility.

In the last few days, the greenback – typically the ultimate safe haven currency – has fallen to its lowest point since the start of 2020. In addition to this, near-zero interest rates and new rounds of stimulus measures around the world have seen investors turn to gold to maximise their returns during all this economic uncertainty.

So far, gold has risen by 28% in 2020.

According to Commonwealth Bank Commodity Analyst, Vivek Dhar, gold is surging for three key reasons: The biggest driver is falling interest rates on long-term US Treasury bonds. The second driver is the weak US dollar. Finally, the nervousness around the pandemic and US-China tensions is incentivising investors to buy up gold as a safe haven.

Mark Haefele, Chief investment Officer UBS Global Wealth Management, also holds this view.

“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,” said Haefele.

On Wednesday, a Federal Reserve meeting will decide whether the central bank will push any further stimulus into the economy.

“With talk of another US$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,” said Tim Shaler, Chief Economist at iTrust Capital.

Some analysts expect gold to hit an unprecedented $US2,000 per ounce in the next few weeks, including Naeem Aslam, Chief Market Analyst at Avatrade who says “The next big target is the $US2,000 level and this can happen this week as we have the Federal Reserve’s meeting”. 

 

“Strong gains are inevitable as we enter a period much like the post-GFC environment, where gold prices soared to record levels as a result of copious amounts of Fed money being pumped into the financial system” said Gavin Wendt, Senior Resource Analyst at MineLife Pty. 

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Past performance is not a reliable indicator of future performance.

Sources:

• Gold skyrockets to an all-time high as US-China tensions flare, and analysts now see the precious metal hitting $2,000
• Gold price hits record high amid fears over coronavirus crisis
• Does current gold price make sense? McKinsey warns these sectors destroyed permanently
• Gold hits record high, as Australian shares rise cautiously amid China tensions