Despite the three leading American indices all closing Monday trading up more 7 per cent, gold has continued to gain ground in the aftermath of March’s marketwide sell-off.
While the yellow metal struggled in the initial stages of the Covid-19 panic, with investors and institutions liquidating their holdings to cover losses and meet margin calls, its reputation as a historic hedge against inflation has won through.
June gold futures finally broke $1,700 on Monday and, importantly, held. By mid-morning Tuesday trading CME two-month futures stand at $1,700.20, having briefly tested $1,740.
The interventions of central banks and governments have contributed significantly to gold’s recent gains, with investors increasingly looking for a safe haven from record low interest rates, unlimited quantitative easing and unprecedented bailouts.
According to Morgan Stanley, the Fed’s balance sheet now accounts for 27 per cent of US GDP, with the European Central Bank higher at 44 per cent and the Bank of Japan topping all major economies at 105 per cent.
Supply issues have also fuelled gold’s rise. The nationwide lockdown imposed in Switzerland to arrest the spread of Covid-19 shuttered three of the world’s most important gold refineries, which have only now started to re-open.
Amid the panic, physical gold has become much sought after to the extent that some vendors have reported shortages and the London Bullion Market Association has had to undertake measures with five key banks to sure up supply.
Such complications have exacerbated the decoupling in spot gold and gold futures. After a week-long lull, futures are once more leading spot gold, with the latter standing around $1,653.
With not only a recession but potentially a depression on the cards throughout much of the developed world as a result of the measures imposed to counter the ongoing pandemic, gold is unlikely to lose its appeal any time soon.
As Carsten Fritsch, an analyst at Commerzbank, recently observed: "The economic impact is already very serious... It is hardly surprising that gold is in demand against this backdrop."
That gold can reach its highest point since 2012 on the same day as US markets surge more than 7 per cent only underlines that many investors and individuals anticipate further blows, or at least further central bank interventions.