Is gold the answer to Monday's market troubles? Analysts double down on metal's safety allure

Goldman Sachs kicked things off last week when it said that gold “is immune to the virus.”

“While so much about the current environment remains unclear, there’s one thing that isn’t: gold, which—unlike people and our economies—is immune to the virus,” Goldman Sachs head of global commodities research Jeff Currie wrote in a note to clients. 

Gold is a “currency of last resort,” Currie added.

“As a result, gold has outperformed other safe-haven assets like the Japanese Yen or Swiss Franc, a trend we see continuing as long as uncertainty around the full impact of COVID-19 remains,” he said.

With the market’s sell-off far from over, gold is looking to continue to make more gains after temporarily breaching the $1,700 an ounce level overnight and hitting the highest levels in more than seven years.

Others were quick to confirm Goldman’s thinking, with Wells Fargo once again upping its year-end price forecast for the yellow metal.

“Gold continues to creep higher, and we are becoming increasingly confident that it has room to keep creeping higher. This has been our thinking for some time now. We increased our gold targets twice in 2019, and we did again last week. Our new year-end 2020 target range is $1,650-$1,750,” wrote Wells Fargo’s head of real asset strategy John LaForge.

Gold’s supportive drivers going forward will remain lower global rates and uncertainty surrounding coronavirus, LaForge noted.

“Most recently, gold’s rise has been fueled by the increased volatility and uncertainty that has followed the coronavirus’ spread. Gold’s prime macro driver, though, continues to be the direction and level of global interest rates, and their persistent flirtation with negative levels,” he said. “Gold is being used by investors as a hedge against the unknown impacts of persistently low long-term rates.”

FXTM also expects higher prices, citing gold’s safe-haven appeal, especially if the $1,681 level is breached. 

“The general uncertainty and current risk aversion should support the precious metal due to its safe-haven nature. Going forward, with the Dollar set to weaken on Fed rate cut bets, prices could re-test $1700 if $1681 is breached,” wrote FXTM senior research analyst Lukman Otunuga.

On Monday, the gold market was caught in crosscurrents as the precious metal retreated from its highest level in more than seven years after investors needed to sell gold to raise cash to offset losses elsewhere.  

“A lot of people are getting hit with margin issues,” said Daniel Pavilonis, senior commodities broker with RJO Futures. “They are being forced to sell something that is profitable.”

At the time of writing, April Comex gold futures were trading at $1,671.40, down 0.06% on the day.

BMO Capital Markets also sees gold holding out better than all other commodities during these turbulent times.

“Gold is still seeing heavy inflows amid market volatility, with Friday’s 782koz inflow to physical-backed ETFs the highest in eight months. In an aggressive market sell-off, this will not necessarily stop the gold price falling, but it is likely to hold up better than other commodities,” wrote BMO Capital Markets analyst Colin Hamilton.