Gold futures climbed on Friday, holding ground above $1,800 an ounce, on track to score a fifth weekly gain in a row as the spread of coronavirus raised the need to hedge against risk amid continued uncertainty over the economic outlook.
“With bullion on the cusp of five consecutive weeks of gains, the precious metal is reflecting the dynamics between hopes surrounding the global economic recovery and enduring concerns over the persistent nature of the pandemic,” said Han Tan, analyst at FXTM, in a note.
Gold futures ended lower on Thursday, pulling back a day after scoring another settlement at the highest since September 2011, but the haven metal held ground above $1,800 an ounce after data showed weekly U.S. jobless benefit claims remained well above 1 million.
Gold is on track for a 1.1% weekly gain, which would mark the fifth rise in a row, and is up more than 19% for the year to date. Analysts have tied gold’s rally in part to a continued fall in bond yields, which have eroded or eliminated the opportunity cost tied to holding non-yielding assets such as gold. The 10-year Treasury note yield
was lower for the week, trading at 0.602% in Friday dealings, a day after closing at its lowest since April 24.
Gold has also retained appeal amid worries that aggressive stimulus efforts could spark inflationary pressures.
In a note dated Thursday, analysts at Goldman Sachs wrote that “gold is a function of two primary factors: ‘Fear’ which drives investment demand in developed markets, and ‘Wealth’ which drives consumer demand in emerging markets.”
“An environment where the U.S. recovery slows due to a second wave of virus cases, but China, the world’s largest retail gold buyer, is recovering strongly is ideal for gold, as this would put downward pressure on U.S. real rates via the ‘Fear’ channel and increase EM demand for gold via the ‘Wealth’ channel,” they wrote.
“U.S. underperformance is also bearish the dollar, which helps gold by boosting the dollar purchasing power of consumers outside the U.S.,” they said.
Given all of that, the analyst said they have “even greater conviction” in their bullish $2,000 an ounce 12-month price target.