Gold continues to shine as 'haven of last resort'

NEW YORK • Gold is again living up to its status as a safe-haven investment as the coronavirus outbreak, depressed real rates and increased focus on the United States election continue to drive demand for the metal.

Goldman Sachs has boosted its gold forecast to US$1,800 an ounce, with its analyst Mikhail Sprogis saying on Wednesday that the metal has outperformed traditional haven currencies including the Japanese yen and Swiss franc as "the haven of last resort".

Gold is trading near a seven-year high, supported by an increasing number of coronavirus cases worldwide that threatens to curtail global economic activity.

Goldman raised its 12-month projection by US$200 and said "in the event the virus effect spreads to the second quarter, we could see gold top US$1,800 an ounce already on a three-month basis".

Spot gold, which is up more than 8 per cent this year, traded at US$1,649 an ounce yesterday.

The bank expects prices to climb to US$1,700 an ounce in three months and to US$1,750 in six months. It previously forecast US$1,600 for both timeframes.

Goldman also raised its silver forecast.

Mr Peter Kinsella, global head of foreign exchange strategy at UBP in London, said: "Safe-haven currencies are doing very well and gold is heading back higher, and unless we see a slowdown in the coronavirus cases outside China, risk sentiment will continue to be undermined."

There is still room for more gains, if history is anything to go by. Assets in bullion-backed exchange-traded funds (ETFs) are at the highest ever and money managers are holding a near-record bullish bet.

Yet gold remains a relatively small percentage of portfolios by historic standards.

After an unprecedented 25 straight days of inflows, the total value of gold held by ETFs tracked by Bloomberg is closing in on the record of more than US$144 billion (S$201 billion) reached in 2012.

But while bullion holdings have jumped this year, they are still relatively low as a proportion of total ETF assets. Said Mr Benjamin Jones, senior multi-asset strategist at State Street Corp: "There is room for further demand - particularly on the ETF side."

Fewer than 10 per cent of investors own gold and the metal probably makes up less than 2 per cent of portfolios on average, according to Mr Peter Grosskopf, chief executive officer of Sprott, a money manager that specialises in precious metals.

Gold will get a real chance to show off its haven credentials if the virus outbreak transforms into a pandemic. In that scenario, Oxford Economics estimates a cost of US$1.1 trillion to global gross domestic product, with the US and euro-zone economies suffering recessions in the first half of this year.

"With coronavirus outbreaks reigniting fears of recession, it is worth noting gold has proved to be a resilient ballast in the last three recessions," said Mr Chris Dhanraj, head of US iShares Investment Strategy at BlackRock.

Even if gold's gains stall, that does not mean the trend has to turn bearish, said Mr Gary Christie, head of North American research at Trading Central.

"The long-term picture is good because momentum and trend indicators are still bullish," he said.

BLOOMBERG, REUTERS