Gold Price Sees Sharp Correction but $2,000 Still in the Cards
Fresh off a new six-year high, the price of gold tumbled on Thursday, as stocks and the dollar staged modest relief rallies after a week filled with trade-war drama and central-bank capitulation.
Gold Price Update
Comex gold futures traded as low as $1,501.60 a troy ounce in New York on Thursday, less than 24 hours after hitting a more than six-year high of $1,522.70. The yellow metal was last seen trading at $1,505.60 a troy ounce, having declined $14.00, or 0.9%.
The price correction is a blip on the radar for a metal that has been rallying for most of 2019. Gold is up more than 17% in 2019 and 23% over the past year.
Silver, whose breakout was more extreme on Wednesday, also pulled back sharply from yearly highs. The silver metal fell 36 cents, or 2.1%, to $16.84 a troy ounce in New York trading.
The gold/silver ratio used by investors to time their entry into precious metals has been extremely choppy of late. As of Wednesday’s close, one ounce of gold bought 87.66 ounces of silver. The ratio was as high as 93.31 at the beginning of July, which means silver’s value has appreciated faster than gold’s.
The U.S. dollar strengthened against a basket of currencies Thursday, but remains well off last week’s multi-year highs. The dollar index climbed 0.1% to 97.66.
U.S. stocks also rose after a lackluster Wednesday session. The Dow Jones Industrial Average is up 148 points at the time of writing.
Gold’s 12-month trajectory suggests that the recent breakout wasn’t as sudden as some market analysts have suggested. The yellow metal is benefiting from a perfect storm of factors tied to central-bank policy, U.S.-China trade uncertainty and a protracted slowdown in global economic growth.
Then there’s the overlooked fact that gold has already smashed all-time highs against several foreign currencies, including the Australian dollar, Canadian dollar, Japanese yen, British pound and Indian rupee. Futures traders often ignore foreign exchange rates because gold derivatives are priced in U.S. dollars.
Bank of America Merrill Lynch believes $1,500 U.S. a troy ounce is a conservative estimate for gold heading into 2020. In a recent report, the U.S. bank said “we see scope for gold to rise towards $2,000/oz” by the second quarter of next year.
The bank’s analysts said “quantitative failure” will underpin gold’s advance moving forward.
“Successive rounds of monetary easing have had a series of side effects. Beyond falling rates, around $14tn of debt now has negative yields (including Germany’s 30Y Bund as of today). This has been a key driver behind the recent gold rally and with more easing to come, the dynamic will likely sustain a bid for the yellow metal,” BofAML said, according to Kitco.
The aforementioned German bond yields have all turned negative, reflecting deep pessimism about the economy. Last week, the 30-year Bund yield joined its shorter-term counterparts in negative territory for the first time.
Featured image courtesy of Shutterstock. Charts via Bloomberg and goldprice.org.