Gold Soaring Towards Record Highs

Gold took advantage of a weak dollar on Thursday and saw itself reach another nine-year high and approach the $1,900/oz level while rising geopolitical risks and a weakening US dollar continue to increase the metals safe haven appeal.

Spot gold rose 1.2% to $1,894.70/oz by 11:45 EDT, its highest since September 2011. US gold futures for August delivery advanced 1.3% to $1,889.70/oz.

Political tensions between the world’s two largest economies escalated further on Wednesday, with the US government abruptly ordering the closure of the Chinese consulate in Houston, Texas, following allegations of spying. China adamantly denied the claims and was furious with the decision, vowing to retaliate if the US does not rescind the order.

Gold has surged nearly 22% so far this year against a backdrop of a multitude of factors driving market uncertainty.

Joseph Cavatoni, managing director, USA, and ETFs, World Gold Council, said “the two drivers of gold can be broken down into strategic and tactical.”

“In the short term, which is tactical, what we see is the price spiking and dropping, correlating with other assets … but in the longer term (strategic), we see either economic expansion or market risk uncertainty being the real strategic drivers of gold, and right now, economic expansion is clearly not what is driving the price of gold,” Cavatoni said.

Gold’s bullish run doesn’t seem to be letting up soon

“Gold as a store of value has significantly enhanced so it wouldn’t be a surprise if it rises to $1,900,” analyst Xiao Fu from the Bank of China said, adding that “geopolitical risks, worries about further tensions between Washington and Beijing, and ample liquidity from widespread central bank stimulus measures are driving prices.”

Also supporting the Gold resurgence was the Dollar index touching a more-than four-month low on Thursday. Expectations of another round of US stimulus measures amidst a low-interest environment have also helped gold, as it is largely considered a hedge against inflation and currency debasement.

“You have this wave of stimulus practically from every central bank in the world, everybody is putting out stimulus packages, easy money, loans, new debt and all of that is also bullish for gold,” said Ed Meir Analyst at ED&F Capital Markets.
Indicative of investor sentiment, holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.4% to 1,225.01 tonnes on Wednesday, the highest since March 2013.

The bank raised its near-term forecast for gold to reach $2,000/oz by the end of September before paring back to $1,900/oz by year-end.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store