Barron's: Gold Is Gearing Up for a Sustained Rally, Goldman Says. Here's Why

Article by Evie Liu in Barron's

Investors might have noticed something bizarre during the stock market’s brutal selloff over the past two weeks. Gold, the commodity usually considered a haven asset, saw its price tumble by more than 10%, from $1,675 per ounce on Mar. 9 to $1,484 as of last Friday.

But investors shouldn’t read too much into the decline or think the precious metal is losing its status as a safe asset. Already, gold prices rallied this Monday and Tuesday after stabilizing a bit last week.

By Tuesday’s close, the commodity has largely recovered all its losses from the previous selloff to settle at $1666 per ounce.

Goldman Sachs strategist Jeffrey Currie says there are reasons to expect a sustained rally in gold and offers an explanation for its recent drop.

Short-term declines in gold actually aren’t that uncommon during global economic turmoil. Liquidity strain was the main driver behind the commodity’s recent fallout, Currie explained in a Monday note. In other words, the world has been running short of cash.

Gold’s behavior was similar during the 2008 financial crisis. Gold failed to act as a haven asset during the market’s initial selloff, falling by around 20% due to dollar strength and the market’s run to cash. The turning point came after the Federal Reserve’s announcement of a $600 billion quantitative easing plan in November 2008. After that, gold staged a strong comeback, despite further weakness in the equity market.

Currie expects gold demand in Asian emerging markets to rebound strongly once the coronavirus crisis abates and their economies stabilize.

Still, Currie noted that this doesn’t mean that the dollar shortages are entirely behind us. With the greenback trading near an all-time high, inflationary concerns should continue to support gold prices as the currency of last resort.

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