Global and domestic markets have witnessed significant turbulence as a result of the ongoing Covid-19 crisis, which has also hit the US dollar around the globe.
Despite the slight decline in global gold prices during last week, it has managed to reach price levels unseen since 2012, surging by over 25 percent compared to 2018 levels that witnessed the first signs of an increase in the price of gold.
Unprecedented performance in 1H 2020
In its recent report, issued in mid-July, regarding gold market performance during the first half of 2020, the World Gold Council (WGC) said that gold showed remarkable performance in the period mentioned, increasing by 16.8 percent in US-dollar terms and significantly outperforming all other major asset classes. Gold has been reaching record or near-record highs in all other major currencies, according the WGC.
The WGC added that the high level of uncertainty that accompanies the Covid-19 crisis, an anticipated second wave of the pandemic, and the ultra-low interest rate environment have boosted investors’ appetite for gold for the sake of reducing risk, driving up prices globally.
But this is not the end of the story. In response to the coronavirus crisis, governments across the world have adopted stimulus packages, including expanding asset purchasing programmes in order to stabilise and protect their economies.
The WGC said that such actions have contributed to current hikes in gold prices in leading to several unintended consequences on asset performance. In addition, widespread fiscal stimuli and ballooning government debt levels are raising concerns about long-term inflation, or significant erosion of the value of fiat currencies and potential structural devaluations. In this regard, the WGC expects that gold will play an increasingly relevant role in investor portfolios amid heightened risk and uncertainty.
Gold investors’ fortunes go up
By end of July, the fortunes of three of prominent billionaires witnessed a significant surge due to their investing in gold. According to Bloomberg's billionaires index, Saudi Arabia’s Mohammed Al-Amoudi and Russia’s Alexander Nesis and Suleiman Kerimov collectively become $2.8 billion richer in 2020 amid the coronavirus crisis.
Additionally, Egyptian businessman Naguib Sawiris, who announced in March that he eyes gold mining as a sector into which to expand his investments, owns now $1.1 billion worth of gold mining stocks, which has contributed in compensating his companies' loses during the partial lockdown imposed in Egypt to contain the pandemic, according to recent statements by Sawiris.
Jewellery demand declines
Yet, while current circumstances support investing in gold, consumer demand witnessed a decline in the first half of 2020, according to WGC data.
During the first half of 2020, jewellery demand slumped by 46 percent (Y-o-Y) to 572 tons, driven by lockdown measures, high prices and the deterioration of individual income, according to the WGC.
The same applied to gold used in technology, which witnessed a 13 percent decline as well, as end-user demand for electronics collapsed.
Crises proves gold's value
Associate director of the Kuwaiti Sabayik for Precious Metals Group, Ragab Hamed, told Ahram Online that hikes in gold prices have pushed Egyptians to buy investment gold, which includes gold ingots, gold pounds and 21 karat gold and 24 karat gold jewellery, as the ongoing crisis has proven gold to be a safe haven.
He added that the domestic market is witnessing stable prices, despite price hikes and light declines in gold prices over the last week, which nourished the gold jewellery market.
Hamed attributed the surge in gold prices not only to the ongoing Covid-19 crisis, but also to the unprecedented stimulus packages countries around the globe have adopted, weak performance of the US dollar, and the significant decline in interest rates that the US Federal Reserve has imposed.
Global gold prices to hit $5,000 by 2022
Based on current trends, Hamed projected global gold prices would hit $2,000 per ounce in 2020, and rise to $5,000 per ounce in 2022, with domestic gold prices expected to reach beyond EGP 2,000 per gram in 2020 and 2021, depending on developments in the global economy.
On the other hand, stock market expert Mohamed Deshnawy expects global gold prices to hit $2,400 and rise to $2,650 by 2022. Deshnawy attributed his expectation to the contraction of global demand, the deterioration of the US dollar, the decline in employment indices, unprecedented stimulus packages and decreasing interest rates on lending and deposits.
“These conditions have forced individuals and investors alike to give up on the US dollar and hoard more gold. Moreover, negative interest rates have lowered the investor appetites to invest in bonds and T-bills. Thus, gold is the suitable choice for the time being,” according to Deshnawy.
US dollar, euro expected to lose their weight
According to recent reports published by American Daily FX website, the US dollar and euro are about to lose their importance as safe havens for investors and individuals amid the current crisis and its related consequences.
Over the medium term, Daily FX expected the US dollar outlook to stagnate amid fiscal stimulus talks and the sudden collapse of US-China trade talks that may dampen market sentiments.
It also said that the prolonged stalemate between US Republicans and Democrats, as the Senate breaks for summer recess despite failing to agree on an additional coronavirus stimulus package, would further underline the strength of the US dollar.