Gold targets 'higher highs' as coronavirus fight saps US dollar strength

Gold was trading just off seven-year highs Thursday as investors bet the precious metal's price would swell as the COVID-19 pandemic reshapes financial markets.

Futures for June delivery inched up 0.3 percent to $1,746 per ounce, holding just below their April high of $1,768. Gold has surged 16 percent this year, thanks to investors who view it as a relatively safe asset while the U.S. dollar weakens amid extraordinary government efforts to insulate the economy from the coronavirus.

“The Fed is pursuing such an accommodative posture that money supply is rising at over 20 percent annual rate,” David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research, told FOX Business. “Gold supply in any given year is rising at roughly a 1 percent rate, and we ultimately price gold in dollars.”

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The Federal Reserve took unprecedented action to support the U.S. economy as states across the country issued “stay-at-home” orders to slow the spread of COVID-19, forcing the closure of many businesses and the cancellation of non-essential travel.

The central bank slashed interest rates to nearly zero, an action that typically devalues the dollar, launched lending facilities to support the financial system and announced plans for unlimited purchases of Treasury securities. As a result, the central bank’s balance sheet has ballooned by 50 percent over the past month to $6 trillion.

“What gold is telling you, is that down the road, past June, they're looking for inflation,” George Gero, managing director at RBC Global Wealth Management and a member of the COMEX board of directors, told FOX Business.

Agriculture exports have been dramatically reduced because of the COVID-19 pandemic, but Gero expects a supply crunch next year as the U.S. ships $6 billion of those goods to China.

He noted that eggs and orange juice are among the goods whose prices have already started to climb and that consumers will “see tremendous inflation at supermarkets” over the next year.

For three weeks, the gold market experienced backwardation, or prices for delivery in the short term being higher than in the longer term. The discrepancy, which is an indication there’s going to be strong demand, occurred as the London Metals Exchange suffered transportation issues due to COVID-19 and was unable to coordinate delivery.

Gero says that while that pricing issue has reversed due to the “introduction of a new multidelivery COMEX contract” and the “addition of 12 million ounces into COMEX warehouses,” demand will continue to build as inflation comes down the pike.

“As we keep going down the road, we're going to see more volatility but higher highs,” he said. Gero has a near-term target of $1,800 and thinks the precious metal could take out its all-time high during the first half of 2021. Front-month gold futures, or those for delivery in the current month, hit a record $1,888.70 on Aug. 22, 2011.

Rosenberg predicts gold will reach at least $3,000 an ounce over the next few years.

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“The day that the bull market in gold is over is the day that Rosenberg changes his name to Goldberg,” Rosenberg said. “That'll be the day you take your profits.”