Spot gold fell in line with the dollar on Monday, hitting an intraday low of $1,924.07 an ounce as a return to the safe-haven dollar drove some safe-haven flows out of gold, even as economic uncertainty kept investors from waiting for further moves from central Banks. But the Labor Day holiday in the United States temporarily limited market volatility.
“The higher dollar has put pressure on gold, and long-term uncertainty remains in the market, which keeps prices low,” said Carsten Menke, an analyst at Julius Baer.
Yet gold is still up more than 27 per cent this year, given that central Banks around the world have cut interest rates in response to the covid-19 crisis. Investors are now focused on Thursday’s policy decision by the European Central Bank.
Meanwhile, India, the world’s second largest consumer of gold and silver, has overtaken Brazil to become the world’s second largest country with 4.2 million confirmed cases of COVID-19.
Eugen Weinberg at Commerzbank said: “India’s gold imports were in good shape last month and the recent price action has not been driven by physical demand for gold bars and COINS, but by buying from exchange-traded funds.”
On the other hand, Daniel Pavilonis, senior market strategist at RJO Futures in Kitco News, said the threat of rising inflation and the Fed’s new stance of targeting average inflation will keep real interest rates low, which could support higher gold and silver prices in the long term.
Pavilonis said gold held key support levels near its 50-day moving average, so the market is still relatively strong.
The risk of inflation has Pavilonis optimistic that the gold price target will remain at $2,300 an ounce by the end of the year. In addition to inflation, he thinks the U.S. election in November could influence precious metals for the rest of the year. However, he is confident that demand for safety from either the election or geopolitical tensions will not disappear soon.
Pavilions add that in addition to being bullish on gold, he is also bullish on silver and thinks it is only a matter of time before it follows gold’s lead and hits an all-time high.