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Gold continues its surge north of $1,600/oz, driven by a combination of coronavirus uncertainty and a Federal Reserve that remains anxious about inflation, strategists at TD Securities inform.

Key quotes

“A portion of the recent surge can surely be attributed to a safe haven bid, but risk markets have not experienced the pain that typically coincides with a haven bid, suggesting there is more to this rally in safe assets than just the uncertainty driven bid.” 

“Gold and rates appear to be telling the Fed they need to cut once again if their inflation goal is to be reached. Indeed, the structural bid in gold remains driven by real rate suppression from global central banks and the general willingness to let inflation overshoot for some time, should it be achieved.” 

“While pullbacks could be in the cards as the virus story eventually fades, global central banks’ asymmetric reaction function should continue to support gold through 2020, suggesting any dips should be bought.”

 

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