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Goldman sees safe-haven gold hitting US$1,800

Gold is near a seven-year high, supported by an increasing number of coronavirus cases worldwide that threatens to curtail economic activity. It has outperformed traditional haven currencies.

New York

GOLDMAN Sachs Group boosted its gold forecast to US$1,800 an ounce as the coronavirus, depressed real rates, and increased focus on the US election continue to drive demand for the metal as a haven.

The bank raised its 12-month projection by US$200, and said "in the event that the virus effect spreads to Q2, we could see gold top US$1,800/oz already on a three-month basis".

Spot gold, which is up more than 8 per cent this year, traded at US$1,651.70 an ounce on Thursday.

Gold is trading near a seven-year high, supported by an increasing number of coronavirus cases worldwide that threaten to curtail global economic activity. The metal has outperformed traditional haven currencies including the Japanese yen and Swiss franc as "the haven of last resort", Goldman analyst Mikhail Sprogis said in a note on Wednesday.

The bank expects prices to climb to US$1,700 an ounce in three months, and to US$1,750 in six months. It previously forecast US$1,600 for both time frames.

"Safe-haven demand is strong at the moment on the global economic impact of the coronavirus. There are growing expectations that central banks will certainly need to take action if it continues to spread, particularly outside China," ANZ analyst Daniel Hynes said.

The number of new coronavirus infections inside China - the source of the outbreak - was for the first time overtaken by fresh cases elsewhere on Wednesday, with Italy and Iran emerging as epicentres of the rapidly spreading illness.

US health authorities, managing 59 cases so far, warned of the potential for a pandemic, although President Donald Trump said the country was in "great shape" to handle a looming health crisis.

Oil and Asian share markets slipped on Thursday, as investors sought safety in gold and bonds. Benchmark US 10-year Treasury yields also hit a record low earlier in the session.

Investors, meanwhile, have increased bets for a rate cut by the US Federal Reserve to ease the impact on the economy, according to an analysis of Fed funds futures compiled by the CME Group.

Money markets have also priced in cuts by the European Central Bank and the Bank of England.

"Markets are already pricing in some decent cuts to rates across the globe so that's the clear driver of (gold) prices and demand," ANZ's Mr Hynes said.

Lower interest rates reduce the opportunity cost of holding non-yielding bullion. BLOOMBERG, REUTERS