Gold eyes biggest quarterly price gain since 2016

Gold looks set to end the second quarter with double-digit price gains. 

The yellow metal is currently trading at $1,770 per ounce, representing a 12.4% rally on a quarter-to-date basis. That is the biggest quarterly gain since the first three months of 2016 when prices rose by 16.11%. 

Gold loves liquidity

Gold, a precious metal with limited supply, seems to have benefitted from the massive liquidity infused by the US Federal Reserve and other major central banks over the past three months. 

The Fed's balance sheet has expanded by over $3 trillion since the beginning of the virus crisis in early March. Meanwhile, the combined balance sheet of G4 central banks has risen by $5 trillion during the same period. The central banks have been running accommodative monetary policies to help their respective economies absorb the shock arising from the coronavirus outbreak. 

In addition, intermittent episodes of US-China tensions likely played a role in pushing gold higher. 

The yellow metal looks set to extend gains over the coming months as the central banks are unlikely to unwind their ultra-accommodative policies anytime soon. Further, border standoff between India and China, heightened prospects of trade between the US and the European Union and the lingering US-China tensions would continue to draw haven bids for gold. 

Goldman Sachs expects gold to set a new record high of $2,000 in the medium-term. The investment bank, however, is of the opinion that further gains would remain elusive unless the US inflation rises above2% and is met with a muted monetary policy response. 

Technical levels