Gold continues its impressive rally and yesterday it broke back above $1600/oz to reach the highest close since 2013. The recent move has been particular impressive occurring at time when the dollar has been breaking higher against several major currencies. The dollar strength has been particular noticeable against the euro which has dropped to a near 3-year low and in the process gold priced in euros has rallied to a fresh record high at €1490/oz.
The rally has also occurred despite reduced COVID19 fears with the market right or wrongly increasingly adopting a belief that it will primarily be a Q1 event. This on the assumption central banks and governments will do whatever it takes to support a return to trend growth later this year.
So why is gold in demand when other markets are doing better and the dollar is rising? We believe that the combination of additional rate cuts, increased stimulus, negative US real yields and U.S. stocks back to record levels will continue to drive strategic diversification and safe haven demand. Adding to this the potential risk that the virus outbreak may have a longer than expected impact.
January was a particular worrying months for the markets with U.S.-Iran tensions being followed by the virus outbreak. During January total holdings in Exchange-traded funds backed by bullion rose by an average of 1.3 tons/day. So far this February holdings have, despite the mentioned dollar strength and recovering markets, been rising by 1.9 tons/day.