Christopher ZeniosGoldman Sachs informed clients recently to invest in the “currency of the last resort” as Gold continued to push higher.
The coronavirus crisis hit gold alongside other assets resulting in a sharp fall of more than 12% from its early March peak of around $1,700 a troy ounce to $1,460 last week due to investors rushing for dollars, selling off all non-essential assets including gold.
The announcement from Sachs aligned with an announcement from the Fed stating it would buy unlimited amounts of government bonds and have tasked asset manager BlackRock to handle this), which caused the dollar to fall and led gold to rise by more than 4%.
The bank went on to state that gold is at an inflection point and could likely reach $1,800 over the next 12 months, helping the metal push even higher.
Supply Chain of Precious Metal
Three of the world’s largest gold refineries announced that due to developments with the COVID-19 virus production has been suspended. The decision was announced following an order from local authorities to close non-essential industries to tackle the spread of the virus in Switzerland.
Switzerland is one of the most important hubs for gold and precious metal refining. The three refineries that have been closed usually process 1,500 tonnes of gold a year, a third of the total global supply.
Global Repercussions
Recently economists at Morgan Stanley declared that the pandemic has sparked a global recession with speculation as to the depth and duration. Previous hopes of the world avoiding this path was lost a day after President Donald Trump conceded the U.S. slump alone is set to be “a bad one”, for the first time since the financial crisis.
Goldman Sachs commented “Over the last few days social distancing measures have shut down normal life in much of the U.S. News reports point to a sudden surge in layoffs and a collapse in spending, both historic in size and speed, as well as shutdowns of many schools, stores, offices, manufacturing plants, and construction sites. These developments argue for a much sharper drop in GDP in Q1 and Q2,”
The firm estimates reduction in manufacturing activity, consumption, and building investment will lover the level of GDP in April by 10%, with some believing this will only fade in later months.
Goldman Sachs commented “We now forecast quarter-on-quarter annualised growth rates of -6% in Q1, -24% in Q2, +12% in Q3, and +10% in Q4, leaving full-year growth at -3.8% on an annual average basis and -3.1% on a Q4/Q4 basis,”
Alongside these developments, nearly 3.3million Americans registered as unemployed last week due to COVID-19. This rate of unemployment is roughly five times greater than the 1982 record.
