PRESS ROOM
Gold back to a seven-year high
Friday 06th March '20
After a temporary dip, gold is back to a seven-year high (US$1688/oz). 10-year US Treasury Yields have fallen to an all-time low (0.77% at the time of writing) after the US Federal Reserve cut rates earlier in the week. The Bank of Canada and Reserve Bank of Australia have also cut rates this week, while a number of governments and supranational organizations are drawing up blueprints for support/stimulus. Comments from other central bankers have become markedly more dovish this week. A raft of Purchasing Manager Indices reports laid bare just how badly the global manufacturing sector has been hit by the disruption to supply chains. As we noted in “Has the Black Swan Landed?” gold is potentially one of the best hedges to these highly unpredictable events. Gold in Exchange Traded Products have hit an all-time high of 85mn troy ounces and net speculative positioning in gold futures have also hit levels never seen before.
Our models indicate that if the current situation of extremely low bond yields, elevated positioning in futures and inflation above 2% persists for the remainder of the year, we could get gold trading above US$2000/oz by the end of the year. That would mark an all-time high.
After strong rallies and stretched positioning, gold often takes a pause. If stocks experience another violent downdraft, gold could be sold to meet margins (as we suspect happened last week).