With panic-stricken investors fleeing equity and oil markets and taking refuge in the safe-haven yellow metal, gold prices rallied on Monday, having briefly breached the $1,700 level.
As the global market started the week on a horrific footing, the relentless rout in global equities continued while spot gold rose 0.4 percent to $1,680.07 an ounce by 1136 GMT, having touched its highest since December 2012 at $1,702.56. US gold futures rose 0.5 per cent to $1,680.20.
Precious metal analysts said the gold market appears to be the only asset in positive territory while oil futures are seeing their worst selloff since 1991. West Texas Intermediate Crude (WTI) oil prices are starting the week down nearly 26 percent.
Recession fears continue to build as the world reacts to the growing spread of the coronavirus pandemic, said analysts. Not only is the oil market suffering from expected weak demand in a slowing global economy, but a price war is looming after Opec nations and Russia were unable to agree on production cuts. In response to the breakdown in talks, Saudi Arabia slashed its official selling price and announced plans to raise crude production significantly. Analysts warned that the situation can continue to deteriorate.
Mike McGlone, a senior commodity strategist at Bloomberg Intelligence, said he could see gold prices pushing to $1,800 an ounce because of rising bond prices, which are the inverse to yields.
Paul Robinson, managing director at CRU, said that he expects gold to be the asset to own in the near-term as markets are still a few weeks away from full-on panic.
Ole Hansen, head of commodity strategy at Saxo Bank, sees strong potential in gold, but added that the yellow metal will be vulnerable to deleveraging in the marketplace because of massive volatility.
However, Hansen added that weak economic growth will continue to support lower bond yields, which in turn are bullish for gold.
"I think you simply have to be bullish on gold. We haven't even seen the worst for the global economy," he said.
Along with safe-haven demand, gold prices are also benefiting from fresh historic lows in US bond yields.
Analysts expect gold's uptrend to remain in place for most of the year, and warn investors to use some caution as volatility remains high.
Ryan McKay, commodity strategist at TD Securities, said that liquidity traps in the marketplace will be a significant risk for gold in the near-term.
"As volatility picks up, you will see these rushes to liquidity that can cause gold to drop sharply," he said.
McKay said despite the risks in the marketplace, the drops in gold are becoming shallower and shallower as investors' demand for safe-haven assets dominates the market.
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