Investors believe this could be the start of a prolonged bullish period for gold.
A few days ago, gold fulfilled numerous bullish forecasts made throughout the summer by finally breaching the $1,500 level. An article on Newsmax reports the metal has enjoyed a tremendous couple of months in terms of price action, having stayed firmly above $1,400 an ounce while occasionally climbing up to $1,450.
According to Newsmax, the move above $1,500 reflects the voracious appetite for haven assets among investors during a time of global turmoil. Spearheading the turmoil has been the prolonged U.S-China trade war, which escalated further after President Trump and Chinese president Xi Jinping were unable to reach satisfactory terms during talks in June.
Since then, Trump has doubled-down on his import restrictions by vowing to impose an additional 10% levy on $300 billion on Chinese goods. Beijing’s response was to once again devalue its currency, bringing the yuan to its lowest level in more than two years. The move drew familiar criticism from Washington, reported Newsmax, as Trump has long accused China of manipulating its currency in order to gain a trade advantage.
As the trade war intensified, the Federal Reserve was forced to make an abrupt policy shift to offset the effects by cutting interest rates in July for the first time in more than a decade. According to Newsmax, the dovish Fed turn has been a major booster of gold prices, especially as Trump stated his desire for a more accommodative Fed board and a possibly weaker greenback.
Other central bankers followed in the Fed’s path, with New Zealand, India and Thailand’s central banks all slicing their benchmark rates over the course of a few days. As demand for safe-haven assets flares up, government bonds, which are generally seen as the main haven competitor to precious metals, are looking the flimsiest they have been in a long time. Many countries are now issuing bonds with low or even negative yields, and even the highly-regarded 10-year Treasury has continued to tumble as various analysts warn that its yield curve is dangerously close to flat territory. According to the Bloomberg Barclays Global Negative Yielding Debt Index, the global stockpile of negative-yielding bonds was pushed to a record $15.01 trillion on Monday.
In contrast, gold has gained roughly 19% since the start of the year as it looks to establish itself above $1,520 an ounce. Veteran investors like Mark Mobius and Ray Dalio have stated that gold’s recent gains could be the start of a prolonged bullish period for the metal as the global economic landscape changes.
Their views have been echoed by analysts at Goldman Sachs and UBS Group AG, with both institutions predicting that gold could hit $1,600 an ounce before the end of the year. Goldman’s team cited rising concerns over global growth as the primary price driver, whereas UBS pointed to the uncertainty caused by the trade war as a key factor. Besides these tailwinds, gold could also be helped along by military tensions in the Middle East, the possibility of a no-deal Brexit, and heavy bullion buying by central banks around the world.