By Geoffrey Smith
Investing.com -- Gold prices extended their rapid rally on Tuesday as investors took advantage of last week’s forced selling to build new long positions in anticipation of another lengthy period of low interest rates.
By 12:20 AM ET (1620 GMT), gold futures for delivery on the Comex exchange were up 5.3% at $1,650.80, having earlier hit their highest since March 11. They're now up 13% from last week’s low.
Spot gold was up 4.0% at $1,615.53.
Silver futures were also back in favor, rising 6% to $14.05 an ounce. Both were supported by an easing of immediate funding pressures, evidenced by the sharp drop in demand for dollars at the European Central Bank’s weekly swap auction.
Platinum and futures spiked after South Africa ordered mines to be put on care and maintenance schedules in order to suppress the spread of the Covid-19 virus. That threatens to create further shortages in supply of palladium in particular, albeit the collapse in global auto sales because of the virus means that carmakers have little immediate cause to worry about supply shortages.
Platinum futures rose 11.7% to $701.10 an ounce, while palladium futures rose 16% to $1,086.50 an ounce.
The shutdown of South Africa’s mine also affects its gold mines, naturally. However, since mined gold is not physically consumed, and since the overwhelming bulk of gold market action is now in financial products such as ETFs, the spot market balance of physical supply and demand is less important.
Gold’s rally broke the traditional correlation with government bonds, which fell sharply as some investors moved back out of havens into equities, while others sold more out of fear the sharp increase in bond supply due to the enormous fiscal stimulus packages announced – and still in preparation – in the U.S., Europe and elsewhere.
Analysts at Goldman Sachs (NYSE:GS) argued that a similar pattern in gold is beginning to emerge as the one in 2008. Twelve years ago, gold also initially struggled under the weight of forced selling, before starting a long rally on fears of long-term currency debasement.
“We are likely at an inflection point where ‘Fear’-driven purchases will begin to dominate liquidity-driven selling pressure as it did in November 2008,” analysts led by Jeff Currie said in a note to clients. “As such, both the near-term and long-term gold outlook are looking far more constructive, and we are increasingly confident in our 12-month target of $1,800/oz.”