Gold prices have experienced a huge rise in volatility since the beginning of the year. When the COVID-19 virus led to significant declines in equity markets, investors rushed to the safety of the yellow metal. However, the large increase in bond and equity market volatility led to investors adjusting their positions, and gold fell to around USD 1,500 per ounce.
A similar price action occurred during the global financial crisis in 2008/9. We think that the positioning squeeze has come to an end and we anticipate that gold will trade at higher levels over the remainder of the year.
Because central banks have run out effective policy stimulus options, they are left with extremely unconventional measures, such as deficit financing, monetising debt and possibly even helicopter money policies. Consequently, there are tail risks of significantly higher gold prices over the medium term, as we explain in this podcast.
Global Head of Forex Strategy