Amid a slight pullback in gold prices, a Bloomberg article recently looked at some of the ingredients behind gold’s exceptional summer as well as factors that will keep pushing the metal forward. The latest bout of price gains came as investors poured into gold over the formal request for an impeachment inquiry into Donald Trump’s presidency. But the flare-up in Washington was only another notch in a long line of tailwinds that have kept gold prices above $1,500.
The metal’s principal gains as of late came as a consequence of the prolonged U.S.-China trade war, which escalated after unsuccessful talks between the two economies several months earlier. Washington has so far increased two import levies on around $300 billion of Chinese goods, while Beijing was quick to respond with a warning that new tariffs on $75 billion of U.S. exports to China would soon follow. To President Trump, however, the real threat of retaliation came in the form of the People’s Bank of China (PBOC) sinking the yuan to record lows, prompting Washington to officially label a country a currency manipulator for the first time in decades.
As the two leaders went toe to toe, the global economy began to contract. This was evidenced by falling factory data from major European producers, which tied into the European Central Bank’s (ECB) earlier slashing of its growth forecast. In response to the trade conflict, the Federal Reserve was urged to stop its tightening cycle and begin slicing rates instead. The board obliged, giving gold perhaps its biggest booster this year. The ECB, along with many other prominent central banks, made sudden dovish shifts and began to turn their eye towards slicing nominal rates as well.
Yet few economies had previously sported a hawkish rhetoric comparable to that of the Fed, one that persisted even as experts warned that close to every tightening cycle in the U.S. ended in a recession. The Fed’s own officials seem to agree, as a recent gauge placed the risk of a domestic recession occurring in the next six months at its highest point since 2008. Some have suggested that there is a growing lack of trust among investors, and the disappointing U.S. consumer confidence report for September has been a tailwind for gold on its own.
Stephen Innes, the Asia-Pacific market strategist at AxiTrader, doesn’t see the commotion surrounding the impeachment disappearing any time soon. In fact, Innes expects it to weigh in on the equity and bond markets and even potentially the U.S. dollar. Large funds appear to agree, having recently boosted their gold holdings to the highest point in six years. Howie Lee, an economist at Oversea-Chinese Banking Corp, feels that the metal has enough short-term momentum to hit $1,600 soon, driven primarily by weakening global growth.