Gold Price Climbs To All-Time High Amid Covid-19, U.S.-China Tensions

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Written by Dana Sanchez
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Gold prices climbed to an all-time high amid Covid-19 and U.S.-China tensions. Gold traded as high as $1,943.92 an ounce. Image in the public domain/Pixabay

Gold prices started the week at an all-time high against the U.S. dollar, trading as high as $1,943.9275 per ounce thanks to nervous investors adding bullion to their portfolios over coronavirus fears and U.S.-China tensions.

Prices exceeded the August 2011 peak of $1,891.90 and some experts expect gold could hit $2,000 an ounce before the rally is over.

The coronavirus has set off a global gold rush, with investors ordering bars and coins and physical traders trying to get their hands on more of it. Travel restrictions have made it more difficult to move the treasured metal around the world. Many are nervous about the pandemic and geopolitical concerns ranging from the 2020 U.S. presidential election to the relationship between the U.S. and China.

“The market is uniformly bullish,” said Tai Wong, a metals trader for 15 years and head of base and precious-metals derivatives trading at Bank of Montreal. “It’s a special time for precious metals where every factor seems to be moving in their favor,” Wong said, according to Wall Street Journal. 

In March, major gold dealers sold out of coins and gold bars amid panic buying as the U.S. economy nosedived and the government agreed on a record $2-trillion bailout, Marketwatch reported.

If investors enter the gold market now, there’s a “horrible feeling of chasing it a bit after the fact”, said Johan Jooste chief investment officer at the Global CIO Office in a CNBC interview.

“We’ve said buy on dips, but … it’s a difficult thing to do now because … you probably have missed out somewhat,” Jooste said.

The record-high price of gold coincides with mounting tensions between the U.S. and China. The U.S. demanded last week that China close its consulate in Houston and China ordered the U.S. on Friday to shut its consulate in Chengdu.

U.S. Secretary of State Mike Pompeo also slammed China in a speech on Thursday, saying he rejected the idea that the U.S. was engaging in a new Cold War while suggesting China could pose a greater threat than the Soviet Union ever did.

Meanwhile, the world has 16,515,848 coronavirus cases and more than 25 percent of them are in the U.S., according to data compiled by Worldometers.

Demand for gold has been raised by the world’s central banks and governments continuing to flood the global economy with cash, Wall Street Journal reported: “Ultralow interest rates make gold more appealing because the metal offers no income simply from holding it. Many analysts also expect historic stimulus measures to eventually spur inflation, eroding the purchasing power of paper money and boosting the value of precious metals.”

For years, the dollar remained elevated compared to many of its peers based on expectations that the U.S. would outperform other economies.

That performance gap is increasingly expected to narrow. European Union leaders earlier this month announced a massive stimulus plan and have been largely successful in their efforts to contain the coronavirus. By comparison, outbreaks around the U.S. have eliminated hopes of a quick economic turnaround stateside, Reuters reported.

“The dollar is hanging by a thread,” said Mazen Issa, senior currency strategist at TD Securities in New York. “At this point, the dollar-weakness mindset has become deeply entrenched.”

As investors continue to face volatility and uncertainty, the appeal of safe-haven assets like gold and silver will only increase, said Steven Dunn, head of exchange-traded products at Aberdeen Standard Investments, according to Kitco News. “The combination of escalating U.S.-China tensions and enduring fears about the economic impact of the coronavirus pandemic have provided plenty of fuel for this surge, and neither seem likely to dissipate in the near term.”

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“It is difficult to talk about resistance in never-before-seen prices, but if our view of interest rates and the turn in the dollar cycle is fair, then $2,500 might not seem unreasonable,” said Marc Chandler, chief market strategist at Bannockburn Global Forex, in a Kitco News interview.

Gold has been a fixture in financial markets for decades because it was used to determine the value of the U.S. dollar until 1971, when President Nixon took the U.S. off the gold standard. Today, it is used as an investment for money managers seeking a store of value during times of turmoil.

Analysts are cautious about a reversal following such a strong rally, but traders say investors who normally don’t trade gold are all over, according to WSJ.