Gold closes at record high for 2nd consecutive trading day as worries about dollar, economy mount

• Gold's price closed at its highest level for the second consecutive day on Monday amid US-China tensions and a sliding dollar.
• The precious metal closed up 1.8%, at $1,931 per ounce, for contracts for delivery in August.
• Some analysts said they see gold hitting $2,000 per ounce in the coming weeks.
• "The next big target is the 2,000 level and this can happen this week as we have the Federal Reserve's meeting," Avatrade's Naeem Aslam said.

The price of gold rallied again on Monday to close at a record for the second consecutive day as the dollar continued to weaken and US-China tensions showed no signs of abating, pushing investors toward safe-haven assets.

The precious metal was up 2.2% at its peak, reaching $1,940.10 per ounce. Gold futures contracts for August delivery closed at $1,931, up 1.8%. Gold breached $1,900 last week, ending Friday at its highest level since 2011.

"Today it is all about gold prices and bulls are celebrating the fact that the gold price has hit an all-time high," said Naeem Aslam, the chief market analyst at Avatrade.

He added: "The next big target is the 2,000 level and this can happen this week as we have the Federal Reserve's meeting. The anticipation is that the Fed is going to send another dovish message and that is likely to bring more weakness in the gold price."

Gold could rise to $2,000 after this week's Fed meeting

While markets are not predicting rate changes from the Fed meeting, set to conclude on Wednesday, investors will be watching whether the central bank plans to enact any further stimulus measures, which could strengthen gold prices.

"While we think gold will continue to be supported by rising geopolitical tensions, in our view the primary drivers of the gold price are its negative correlation to real interest rates and the dollar," said Mark Haefele, the chief investment officer of UBS Global Wealth Management.

The US dollar index has also recently fallen to its lowest point since the start of the year. The greenback is considered the ultimate haven currency, and a lower dollar has lured investors to gold to maximize returns during the pandemic.

Interest rates near zero and a spate of stimulus measures have caused gold to appreciate relative to the dollar. Gold usually fares well during times of economic uncertainty and distress.

"We think these three factors, in combination with limited supply growth as miners continue to restrain capital spending, will drive gold prices higher," Haefele said.

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US-China tensions are pushing the gold price up

US-China tensions have risen in recent months as China enacted security legislation in Hong Kong and the countries have blamed each other for the coronavirus pandemic.

They flared again last week as the US ordered the closure of the Chinese Consulate in Houston and China subsequently ordered the closure of the US Consulate in Chengdu.

On Monday, American diplomatic staff members departed the consulate in Chengdu after a 72-hour deadline.

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Gold investors think inflation will rise

"I expect that gold will take a lot less time to reach $2000.00 an ounce than it did to move from $1820.00 an ounce to $1920.30 an ounce," said Jeffrey Halley, a senior market analyst at Oanda. "That gold has risen seven dollars an ounce since I started writing this paragraph is testament to that."

Tim Shaler, the chief economist at iTrust Capital, attributed gold's bullish momentum to investors' expectations of inflation increasing.

"With talk of another $1 trillion in stimulus in the US and the prospect of a total over 2 trillion euros in short- and long-term stimulus spending in Europe, gold investors are seeing the incentive for future inflation going up," he said.

He said that historically governments would borrow money and repay the debt with inflation, lowering the real cost of the repayment.

Shaler added: "In the US, the inflation of the 1970s came 30 years after the 1940s, when War Bonds were coming due ... Gold is assumed by asset allocators to have a negative correlation to US large cap stocks — making gold a great diversifyer for most investors' long term portfolios. It is no wonder gold prices are going up versus the dollar and other currencies."