Several political and Covid-19-induced factors have resulted in the current gold rally, with the gold price having surged 12% in July and reaching new record levels that have been carried into August with gold tearing above $2 000/oz, says Refinitiv precious metals research director Cameron Alexander.

He says the current trend in the gold price is being driven by its safe-haven appeal as a result of the worsening economic conditions brought about by the Covid-19 pandemic.

Further supporting the rally is the fact that central banks around the world continue to inject stimulus to resuscitate domestic economies, which has led, in some cases, to currency devaluation especially dollar and lower interest rates, says Alexander.

Further, he points out that, during this time, tensions between the US and China have simmered, while US President Donald Trump’s controversial statements on the upcoming elections in the country kept the investors interested in gold. “With all these factors in the backdrop, the journey of gold in August looks promising, but profit taking could lead to the consolidation of prices after such a rapid rally,” he warns.

With a major driver of gold being disruptions brought about by Covid-19, Alexander explains that cases of the virus have exploded across the world. “The global tally of Covid-19 cases is nearing 19-million and conditions are worsening in several US states.”

He notes that the extent of the blow suffered by the global economy as a result of Covid-19 is also being reflected in the data that came out of the US last week, when the country’s gross domestic product contracted by an alarming 32.9% in the April to June quarter.

Exacerbating this is data released by the US Labor Department that shows that the weekly jobless claims for the week ended July 25 at 1.4-million. “Such weak economic data could also prompt the US Congress to shell out on an economic relief bill,” says Alexander, adding that further stimulus measures will be a positive for gold.

However, he also says equities continue to be supported by the huge amount of liquidity that has entered the market as a result of the stimulus measures. “But, if this support falters, we could see an accelerated run on gold.”

Another factor that could disrupt the financial markets and support the gold rally are the political developments in the US, according to Alexander, who says the elections are now less than 100 days away and Trump had recently suggested delaying it, raising concerns he will seek to circumvent voting in a contest where he currently trails his opponent by double digits.

On the geopolitical front, he says relations between the US and China have worsened in the last month, with Trump indicating that he was going to ban China-owned mobile application TikTok from the US. In addition to this, Alexander also points out that the US had recently shut down the Chinese consulate in Houston, and in a tit-for-tat response, China then ordered the closure of a US consulate in the south-western Chinese city of Chengdu.

Going forward, Alexander suggests the focus will continue to be on Covid-19 developments worldwide and on fresh economic data coming out of the US which will influence the price of gold in the short to medium term. “Investors will be monitoring just how quickly the world’s largest economy can return to expansion mode and how soon an economic relief bill will be finalised.”

Against an uncertain backdrop, he says it can be expected that gold will remain steady at a value above the $2 000/oz mark for August, with further upside possible. “With such a rapid rise in recent days, we may well see a retracement in the price and a period of consolidation, but the overall picture remains positive for the yellow metal.”

Economic uncertainty as a result of the impact of Covid-19 is driving gold investment, says Alexander, adding that institutional investors are turning towards COMEX and exchange traded products. “The Standard and Poor’s Depository Receipt assets – the world’s largest gold trading funds – had hit nearly 1 243 t in July, which is highest level in nine years, before easing a bit.

“We retain the view that monetary and fiscal policies around the world will continue to be supportive for gold. Bond yields and short-term interest rates should stay low in nominal terms and negative in real terms for the foreseeable future.”