Last week, gold prices broke the 2011 highs, getting closer to the level of $ 2,000 an ounce. On Monday, August 3, there was a slight rebound, but analysts point out that there are many factors that support a further rise in the price of this metal.
Even at the beginning of July, Goldman Sachs analysts estimated that by the end of the year gold prices could reach the level of 2,000. dollars per ounce. It turned out to be one step after a month (the latest Goldman Sachs forecasts say $ 2,300 by 2022).
What made gold so expensive? First of all, the weak dollar. July was one of the worst months in history for the American currency, the dollar depreciated sharply and one of the effects was the increase in the price of gold expressed in dollars. The second factor was also the uncertainty related to the coronavirus pandemic and the search for the so-called a safe investment haven.
Will gold break this level? Many analysts say yes. According to Barry Dawes of Martin Place Securities, the gold market is “very strong and could reach $ 3,500 in two years.” Garth Bregman of BNP Paribas Wealth Management said that he did not see any factors that could stop the rise in prices anytime soon, but did not rule out some consolidation at $ 2,000 per ounce.
Perhaps this consolidation has already started – Monday, despite an increase in prices at the beginning of the session, did not bring a significant break above the previous levels. Marek Rogalski, chief analyst at DM BOŚ predicts just such a scenario. – The price of gold is correlated with the dollar exchange rate. When the US currency weakens, gold becomes more expensive, and this was the scenario in July. In my opinion, August will bring a rebound – the analyst claims. – I do not expect gold to break any more spectacular records in the near future – he adds.
– I do not want to undertake price forecasting. In the conditions of such high volatility, we are not able to create rational price scenarios – says Przemysła Kwiecień, chief economist at XTB. However, he admits that in the coming weeks the growth in the price of gold may slow down somewhat. – After such large increases, a correction would be something natural – the economist believes.
Moreover, some investors, after an increase of several dozen percent, may attempt to take profits. According to Marek Rogalski, however, this may rather apply to the American market, because the increase in the value of the gold metal was not so dynamic in relation to other currencies.
Both analysts claim that there are many factors that may drive the bull’s price increase in the coming months, although not necessarily as dynamic as in recent weeks. The first is the uncertainty associated with the pandemic and some investors are looking for the so-called safe harbor. Przemysław Kwiecień, however, points out that gold is not such a safe investment as it is considered to be.
In recent years, we have seen a lot of volatility in this market, and if we add to it the currency risk, it turns out that gold is not such a reliable investment – claims Przemysław Kwiecień.
Central banks broke money
A much more important factor – in his opinion – is the policy of mass printing of money in many countries. Many countries are trying to stimulate economies damaged by the coronavirus with powerful, unprecedented aid packages. As a result, hundreds of billions of money flow to the markets, and the result is investors’ flight from paper money, towards gold. There is no indication that the situation in this respect will change. – There is no prospect of any fiscal sense. Nobody is talking anymore about balancing the budget, or even reducing the deficit, says Przemysław Kwiecień.
– We are dealing with the corruption of money by central banks – agrees Marek Rogalski, pointing out that gold has rallied more strongly since mid-March, when the Fed announced the unlimited quantitative easing program. As there are indications that money will continue to flow broadly into the market, this driver of gold price increases will remain valid.
For now, the winners in the gold market are certainly a few central banks – including the National Bank of Poland. Record gold prices improve the NBP paper profit. In 2018-2019, the bank spent $ 5.4 billion on the purchase of the metal. It is now worth $ 8.6 billion.
However, Poland was not the only country to increase its gold reserves. Russia has been doing this at an accelerated pace for years. In 2018-2020, the country led by President Vladimir Putin spent about $ 21.5 billion on gold, increasing its reserves by as much as 460 tons. Paper earnings are about $ 10 billion. Turkey bought 359 tons for about $ 19 billion. and earned about $ 5.5 billion. We are in third place in resource expansion, ahead of China, India and Kazakhstan.
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