Gold Market - Gold Set to Climb Higher in April

Gold prices have received support this week from some abysmal US jobs data and have again broken above $1,600/oz amid still-elevated investor demand. However, gold currently appears undervalued relative to other traditional safe havens. We expect gold prices to jump from the current levels around $1,610/oz to the $1,700/oz mark in April, supported by a slew of weak data from major economies, as well as further extraordinary measures from governments and central banks to prop up their economies. > The US labor market is experiencing tremendous strain. Today's jobs report showed a 701k drop in nonfarm payrolls in March and an even steeper 713k decline in private-sector payrolls. The headline unemployment rate rose to 4.4%. This all comes after yesterday's shocking reading of 6.65 mln initial jobless claims in the week to March 28, which easily topped the record of 3.28 mln set the previous week. Claims in California and New York were up to 721k and 286k, respectively. The next couple of weeks will see a flurry of important data releases from the US. The data is widely expected to remain weak, which could lead to a further sharp increase in unemployment in April. > The macro outlook has also been weakening in Europe and Southeast Asia, as evidenced by this week's PMI data. For example, the Markit March composite PMI for the eurozone was 29.7, below the consensus estimate of 31.4, with the Markit services PMI printing at 26.4, below the expected 28.2. There is currently no reason to expect any improvement in April.> Further weak macro statistics will provide a tailwind for defensive assets, including gold. According to Bloomberg, gold ETFs' gold holdings have been climbing to new highs since March 20. All in all, investment funds have increased their positions in gold by 112 tonnes since the start of March, which has more than made up for the decline in central bank monthly purchases over recent years.> Gold remains attractive from a relative value perspective. After the rally in US Treasuries and the strengthening of the dollar in February and March, gold looks undervalued, even at the current $1,610/oz. Last year, we built a regression model showing the correlation between gold prices and US Treasuries and the DXY index based on data from 2000-19. It suggests at least $100/oz of upside for gold currently.> Volatility in the gold market remains elevated. In March, intraday volatility reached $100/oz amid heavy turnover. After gold hit a seven-year high of $1,701/oz, within a few days it fell more than 14%, testing the $1,456/oz mark. Structural issues are also at play. Throughout March, the premium of Comex gold futures to the spot price rose to $67/oz on average, reflecting a physical deficit of gold in the US, which looks set to continue in April given logistics problems.> Despite the high volatility and selloffs in gold related to the liquidation of positions in other assets, we believe gold is attractive for investment from a fundamentals perspective. In our Multi-Asset Sputnik for 1Q20, we revised upward our average gold price forecasts, now seeing $1,700/oz in 2Q20 and $1,695/oz for 2020 (up from $1,560/oz).