Where is the gold price headed next in 2020?

Gold's safe-haven reputation continues to help its price rise, as riskier markets continue to struggle in the face of a worsening coronavirus outbreak and a new oil price war between Saudi Arabia and Russia.

At 8am on Monday 09 March Singapore time, gold shot to a seven-year high price of US$1,703.32, based on IG data.

Oil’s loss, gold’s gain

This is a stark contrast from oil, which plummeted over 30% within minutes of the market opening yesterday. US Crude oil prices fell as much as 27% to a four-year low of US$30 a barrel, while Brent Crude plunged 31% in early trading from US$45 a barrel to US$31.02 a barrel.

Investors have been flocking in new waves to the safe-haven asset since Saturday 07 March, a day after the Organization of Petroleum Exporting Countries (OPEC) and Russia failed to come to an agreement regarding oil output.

During a meeting held at OPEC’s headquarters in Vienna, Austria on Friday 06 March, Russia had insisted on maintain its existing oil supply and price levels, while the Saudi Arabia-led OPEC had planned to reduce output amid lower oil demand driven by COVID-19’s impact on travel and tourism.

Traders have been selling off, in anticipation of higher oil output and lower prices, triggered by Saudi Arabia’s shock decision to raise oil production by two million barrels a day, and slash prices by between US$6 to US$8 per barrel.

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Market volatility: Equities and US dollar also down

Meanwhile, global stock markets were also weighed down further by this latest confluence of COVID-19 and Saudi-Russia oil tensions, in addition to last week’s US interest rate cuts.

In the US, the S&P 500 index fell 7.60% on Monday, while the Dow Jones Industrial Average lost 7.79%. In Europe, Germany’s DAX Performance Index retreated 7.94%, while the UK’s FTSE 100 descended 7.69%.

The S&P 500 had, in fact, suffered such a quick drop right out of the gate on Monday that it had triggered a level 1 trading halt function on the New York Stock Exchange. According to the exchange, cross-market trading halts called market-wide circuit breakers are enacted if a severe market price decline reaches 7% at level 1, 13% at level 2, and 20% at level 3.

In Asia, Japan’s Nikkei 225 index was down as much as 6.9% as of Tuesday 9.30am; Hong Kong’s Hang Seng Index decreased 4.36%; while Singapore’s Straits Times Index dipped 3.8%.

On the forex front, the US dollar appeared to be the weaker component so far this week, at least based on how the EUR/USD climbed 1.9% over the weekend to a 12-month high of US$1.14970, with the USD/JPY (大口） descending to a two-year low of ¥101.184 on Monday.

What’s the gold price forecast for the rest of 2020?

All this volatility appears to spell good things for the yellow metal in the coming days, if not weeks, at the very least, with risk aversion across global markets still to remain a factor, according to IG Asia market strategist Pan Jingyi.

‘Given the swift turn of events and the expectations that the uncertainties could linger for longer, it is likely that the risk aversion interest could remain strong in the near to medium term for markets,’ she wrote in a client note on Tuesday 10 March.

She added that oil’s current ‘low prices could sustain for some time’, citing the weakened global oil demand and the emergence of a new oil price war between Saudi Arabia and Russia as potential causes.

On that note, she pointed out that preferred havens – including the likes of gold – are likely to ‘retain (their) shine’ moving forward. Even the US dollar, which she said has ‘reclaimed some strength’, could lean toward the downside, as Wall Street is increasingly expecting the US central bank to proceed with interest cuts, ahead of the next Federal Open Market Committee meeting on 18 March.

In terms of price, IG UK Chief Market Analyst Chris Beauchamp noted that if gold price rallies above US$1,700 in the coming days – boosted by this latest safe-haven flow, then investors and traders can look toward a near-term target of US$1,780.

Beyond that, he provided a longer-term price estimate of US$1,924.

Although the commodity did traverse above US$1,700 on Monday, it was unable to sustain that level for long. Gold is now trading back under US$1,660 as of 2.30pm on 10 March Singapore time.

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