Coronavirus Maintains Upward Trend in Gold Prices

Audio 01:59

By: Claire Fages Follow

After hitting its highest level in seven years on Monday, gold is still in an upward trend, favored by low interest rates and the abysmal debt of the States against the Covid-19.

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The ounce of gold started to rise again on Tuesday, May 19. The day before the precious metal had even approached $ 1,800, before falling back to $ 1,730, after the announcement of promising tests by the Moderna laboratory on a vaccine against the Covid-19 disease. The news briefly restored confidence in the stock markets, to the detriment of the bullion, but the upward trend in gold remains, even if the volatility is high.

Safe haven in pandemic times

The precious metal is more than ever a safe haven in these times of pandemic. Investors are wondering about the duration of the health crisis and especially about its economic consequences in the medium and long term. However, we saw on Tuesday that new housing projects plunged 30% in April in the United States.

Economic risks and escalating Sino-American tensions

This is in addition to the gloomy forecasts of the president of the American Federal Reserve on the unemployment rate which could climb to 20 or 25% in the first economy of the planet. If Jérôme Powell ruled out a crisis of the magnitude of 1929 and dismissed the possibility of negative interest rates in the United States, these rates remained very low on both sides of the Atlantic, they no longer paid Investors, also worried by the colossal indebtedness of the countries affected by the Covid. To make matters worse, the escalating tensions are worsening between China and the United States. Which does not bode well for the world economy.

Historical record of investments in ETFs

Investments in bullion have more than offset the drop in sales of gold jewelry. The jewelers had lowered their curtains during the confinement. The Chinese and Indians, the biggest consumers of gold jewelry in the world, therefore reduced their purchases in the first quarter, their currency was also under pressure. But investments in bullion funds or trackers have increased the most in four years. At 3,185 tonnes now, they are reaching their highest level of all time. Similarly, individuals bought 36% more gold coins than the same period last year, especially in Western countries.

Mining production in decline

Central banks continued to collect gold at a slower pace than last year, however, they have many other expenses, it is true. All this while gold production continues to be disrupted by the epidemic. It fell 3% in the first quarter, to its lowest level in 5 years. Mining activity has been slowed down by sanitary measures against Covid-19 in South Africa. In Russia, the army has even set up a field hospital near the largest Polyus gold deposit in Siberia.

Good results for gold companies

Despite this drop in production and the costs of implementing preventive measures, mining companies are reaping good profits in the first quarter thanks to soaring gold prices, from the Canadian giant Barrick to the smallest companies present in West Africa, like Terranga or Endeavor.

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