This morning, gold has just beaten its historic September 2011 record by crossing the symbolic threshold of $2,000 per ounce during yesterday's session. It should be remembered that in January, its price was only $1,525, which represents an increase of more than 30% since the beginning of the year and its strongest rise in ten years.
The price of gold is not rising by chance at the moment and is of course benefiting from its status as a safe haven against the backdrop of the coronavirus crisis and thanks to the current very accommodative monetary policies. The support of the central banks in the States makes bond yields unattractive, particularly with US Treasury bonds whose 10-year yield is negative at -1% when inflation is taken into account.
In addition to this, a depreciating U.S. dollar and a 30% contraction in U.S. GDP in the second quarter caused the greenback to fall.
Finally, in addition to this favourable economic and monetary context, there has also been a significant increase in demand for ETFs. These index products backed by physical gold have in fact recorded seven consecutive months of growth with 734 tonnes of gold purchased since the beginning of the year, i.e. more than the record annual inflows.
Gold's upward trend, although very volatile today, is a fundamental trend that has been going on for seven years now. This is mainly due to purchases by pension funds, insurance companies or wealth management specialists as part of a strategic allocation of their assets
However, in parallel we observe a drop in demand from the jewellery industry with a 46% drop in the first half of the year and a 17% drop in demand for gold bars and coins, notably due to the confinement in China and India.
So now we wonder if the bullish trend on gold will continue. Note first of all that the price of gold remains $200 below that of 2011 once adjusted for inflation. While it is possible that the precious metal may still gain a few dollars, the rise should lose momentum, indicating a significant risk of a bearish turnaround. However, this correction should not be excessive as the net long positions held by speculative financial investors in the futures markets increased only slightly last week and remain below their level of early March.
Among the analysts to watch, Goldman Sachs has raised its 12-month gold price target to $2,300 from $2,000. Bank of America is even more optimistic and is targeting the $3,000 per ounce threshold. However, a temporary correction due to profit-taking is still possible.