Gold rallies as Goldman sees 'inflection point' after sell-off

Gold extended a surge toward $1 600 an ounce after the Federal Reserve took unprecedented measures to protect the US economy from the coronavirus shock, with Goldman Sachs Group saying bullion's probably at an inflection point and it is time to buy.

The precious metal jumped, rallying with risk assets, after the US central bank said on Monday it would buy unlimited amounts of Treasury bonds and mortgage-backed securities to keep borrowing costs low. The Fed also set up programs to ensure credit flows to corporations as well as state governments.

The traditional haven is seeing a resurgence after declining over the last two weeks, when investors had favoured the dollar and sold the precious metal to raise cash. Goldman said the Fed's move would help alleviate the funding stress that's driven gold lower, and investors would now pivot to focus on the expansion of its balance sheet, just as they did in 2008. Goldman also highlighted the rise in de?cits in developed economies, as well as "issues around the sustainability" of European monetary union, according to a note.

"We believe this will likely lead to debasement concerns similar to the post-GFC period," analysts including Jeffrey Currie and Mikhail Sprogis wrote in the March 23 note, referring to the global financial crisis. "Accordingly, we are likely at an in?ection point where 'fear'-driven purchases will begin to dominate liquidity-driven selling pressure, as it did in November 2008."

Spot gold climbed as much as 2% to $1 584.51 an ounce, and was at $1 581.77 at 10:44 in Singapore, following a 3.6% jump on Monday. The Bloomberg Dollar Spot Index dropped after hitting a record a day earlier.

Goldman reaffirmed its 12-month target for bullion to advance to $1 800 an ounce, saying that both near-term and long-term outlooks for bullion were looking far more constructive. The lift from the Fed's move would also offset the negative impact of weaker emerging-market demand for bullion, it said.

There was also a vote of confidence in bullion from veteran investor Mark Mobius. The haven's recent sell-off alongside risk assets such as stocks and oil was a sign of pure panic, with investors selling everything as the pandemic spread, Mobius told Bloomberg TV in an interview.

"I think it's a mistake," he said. "People should have gold and this may be a good time to increase holdings in gold – in fact I'm thinking that myself."

Among the other main precious metals, silver and palladium surged more than 6% and platinum advanced 3%. The two platinum group metals are extending gains amid the broader rise in precious metals, and after a report that South Africa will close its mines for 21 days as part of a lockdown. The country accounts for 75% of the world's platinum and 38% of palladium supply.

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
ZAR/USD
15.20
(-0.63)
ZAR/GBP
20.32
(-0.45)
ZAR/EUR
18.12
(-0.61)
ZAR/AUD
11.20
(-0.65)
ZAR/JPY
0.15
(-0.78)
Gold
1809.97
(+0.12)
Silver
23.29
(-0.15)
Platinum
963.00
(+0.40)
Brent Crude
48.73
(+1.57)
Palladium
2368.48
(+2.46)
All Share
57923.69
(+0.31)
Top 40
53084.13
(+0.27)
Financial 15
11645.28
(+0.04)
Industrial 25
79993.34
(+0.20)
Resource 10
52790.93
(+0.35)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, and I've gotten it.
22% - 340 votes
No, I did not.
51% - 804 votes
My landlord refused
28% - 436 votes
Vote