Global uncertainty throughout the past 12 months has fueled the rise in the price of gold throughout 2019. Fears of a trade war stifling economic growth and a slowdown in overall economic activity have increased the price of gold to over $1,400.
“The gold price has been helped recently by an increasingly bearish outlook for the global economy, mainly due to ongoing trade tariff disputes,” said Ben Kilbey, battery metals/precious EMEA at S&P Global Platts. “Uncertainty remains rife, and for now gold is well bid. However, should a resolution to the trade tit-for-tat land then all bets could be off, and risk-on could return in earnest.”
Speculation as to a potential US Federal Reserve interest rate cut has boosted the precious metal. The next Federal Open Market Committee (FOMC) meeting is just under 4 weeks away and a cut would signal an end to the institution’s decade-long policy. The dollar has fallen on speculation that a cut is imminent, lowering the cost of gold to investors and increasing its attractiveness as a traditional store of value.
“Another boon for bullion has been the increased likelihood of an interest rate cut from the US Federal Reserve later in the year. In dollar terms, gold has hit six-year highs over the past month, and is currently well supported around the $1,400/oz mark,” added Kilbey.
The prospect of a cut became more likely following the June FOMC meeting, with one vote towards a cut and an assessment of current growth momentum as ”moderate” instead of ”solid”. The June jobs report tomorrow is likely to suggest that there is a slowing trend in job creation, partly due to low unemployment rates but also because of the economic impact of trade wars. Further economic slowdown and poor data may push the Fed the act.
It is no longer the Fed alone that is looking to ease monetary policy. “The European Central Bank, the Bank of England, possibly the Bank of Japan and other central banks across the globe are looking to ease monetary policy. Australia and New Zealand have already begun easing, and it’s not like we’re going to have synchronized global easing in monetary policy. This could be one of the major reasons gold prices have risen above $1,400,” said Hussein Sayed, chief market strategist, FXTM.
Markets have already begun to price in aggressive moves by central banks. Ten-year bond yields in the US are now trading below 2 percent whilst the German Bund yield has fallen to -0.4 percent. “I think the combination of market expectations and bond yield movements where there are no more attractive yields could be the major reason that we are seeing this spike in gold prices,” said Sayed.
Unusually, however, equity prices have continued to rally. Typically safe havens, including gold, do not appreciate in price during a rally in equities – either the safe haven will continue to gain and equities fall or the reverse will occur, a trend investors will be looking to capitalize on in the coming months. “For the time being I will be watching for $1,435 on the gold price, at which point a break could lead to a potentially even higher price towards $1,500,” concluded Sayed.