Gold’s ‘Freight Train’ Rally Continues With Sights Set on Record
As with all freight trains it has to stop at some point. The million dollar question is where?
(Bloomberg) -- Investors continue to pile into gold as prices advanced for a fifth day, moving ever closer to the all-time high reached in 2011.
A weaker dollar, negative real rates, worries over the economic cost of the pandemic and flaring political tensions have both gold and silver heading for their biggest annual gain in a decade. Silver, which rallied 20% over the previous four days before taking a breather Thursday, has received added support from traders betting on a revival in industrial demand given massive stimulus measures worldwide.
“I think the old saying ‘don’t step in the path of a freight train’ works well here,” said David Govett, head of precious metals trading at Marex Spectron. “As with all freight trains it has to stop at some point. The million dollar question is where.”
The two metals are the top performers in the Bloomberg Commodity Index this year as investors seek insurance against further economic fallout from the virus. The jump in demand has sent holdings in exchange-traded funds backed by silver and gold to all-time highs, and many industry watchers have predicted further gains.
Spot gold advanced as much as 0.9% to $1,888.57 an ounce, further narrowing the gap with the record $1,921.17 hit in September 2011. The metal traded at $1879.72 by 10:11 a.m. in New York. Spot silver dropped 1.7% to $22.6138 an ounce, after reaching the highest since 2013 earlier Thursday following four straight gains.
Gold futures climbed 0.8% to $1,879.20 an ounce on the Comex in New York. Silver futures fell 1.6%. Palladium futures fell and platinum was little changed.
“The dollar has rebounded slightly and gold and silver, as well major currencies, have eased off the highs correspondingly,” Fawad Razaqzada, a market analyst at ThinkMarkets in London, said by email. “However, as there is no fundamental reason behind the move, I think it is purely driven by profit-taking. Consequently, I would expect the trend to continue.”
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U.S. jobless claims data Thursday showed the first increase since March in filings for unemployment insurance, another sign of a pause in the economic recovery from the coronavirus. Investors are also weighing further tensions between China and the U.S. The Asian nation vowed to retaliate for the U.S. closing its consulate in Houston.
“Gold’s qualities as a diversifier in a low-rate world have shined as the U.S. election approaches, U.S.-China tensions flare and coronavirus concerns persist,” UBS Group AG analysts including Wayne Gordon said in a Thursday research note. The bank raised its near-term forecast for gold to reach $2,000 an ounce by the end of September before paring back to $1,900 by year-end.
Expectations for another round of U.S. stimulus also helped gold. Economists say $1 trillion or more would be needed to avert U.S. disaster as a follow-up to the $2 trillion package injected into the economy earlier this year.
Not Only Gold
Many banks are also bullish on silver, which has posted bigger gains this year than gold. Citigroup Inc. said this week the metal may climb to $30 over the next 12 months, based on a bull-case scenario. Silver holdings in ETFs jumped by the most in a year on Wednesday in tonnage terms, according to preliminary data compiled by Bloomberg.
Precious metals are “going full throttle,” with platinum and palladium also gaining recently, Commerzbank AG analyst Daniel Briesemann said in a note. Platinum futures are heading for the best month since 2012, while the spot price is heading for its best month since 2016.
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