Gold futures ended lower on Friday, but held ground above $1,800 an ounce to score a fifth weekly gain in a row as the spread of coronavirus in many U.S. states and other countries raised the need to hedge against risk amid continued uncertainty over the economic outlook.
“The fundamental drivers stimulating appetite for gold remain firmly in place, with the medium to longer term outlook pointing north,” Lukman Otunuga, senior research analyst at FXTM, told MarketWatch. “However, where gold trades in the week ahead will be heavily influenced by how prices behave around the psychological $1,800” level.
August gold fell by $1.90, or 0.1%, to settle at $1,801.90 an ounce on Comex, while September silver (NYM:SIU20) rose 9 cents, or 0.5%, to $19.053 an ounce.
Gold futures ended lower on Thursday, pulling back after scoring a settlement Wednesday 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.
After charging to levels not seen in nine years, “gold may experience a technical correction back towards the $1,780-$1,765 region before bulls gather fresh momentum on risk aversion,” said Otunuga.
For the week, gold rose roughly 0.7% from last Thursday’s settlement, which was the week’s last session due to the Independence Day holiday. The metal now has tallied a fifth weekly rise in a row, and trades up by more than 18% for the year to date. Silver was up about 4% for the week.
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 (XTUP:BX:TMUBMUSD10Y) was lower for the week, trading at 0.619% in Friday dealings, a day after closing at its lowest since April 24.
Gold also has kept its 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.
Among other metals on Comex, September copper (NYM:HGU20) rose 2.1% to $2.8975 a pound, for a weekly gain of more than 5%. October platinum (NYM:PLV20) shed 0.1% at $845.90 an ounce, tacking on around 1.7% for the week, and September palladium (NYM:PAU20) added 1.6% to $1,994.40 an ounce, for a weekly rise of over 3%.