As investors worldwide become increasingly wary of a potential global recession, precious metals are reaping the benefits. Since the start of the year, gold is up nearly 19% and is on its way to a fourth consecutive month of gains during what is usually a tepid quarter for the market. Likewise, silver has finally broken out of its rut of recent years and has seen a gain of roughly 7% over the same period, with prices climbing to their highest level in more than a year.
And while the gains for both metals thus far have been outstanding, Forbes contributor Naeem Aslam believes investors are in store for something much bigger. In recent weeks, gold has held firmly above the $1,500 level and briefly touched $1,555 before trending lower towards the $1,520 range. Aslam, however, thinks that the metal could soon catch even gold bugs by surprise due to the sheer amount of factors playing in its favor.
The key tailwind moving gold prices up has been the ongoing U.S.-China trade war and the Federal Reserve’s responses to it. Even before the recent escalation over import disputes between Washington and Beijing, many warned that the multi-year hiking schedule that the Fed persistently adhered to would ultimately plunge the U.S. economy into a recession.
Now, concerns have shifted on how the trade war will affect the Fed’s policies and the global economy as a whole. Aslam points to highly disappointing GDP data from Germany, Europe’s biggest economy, as an example of how the trade conflict has already begun to take its toll on global growth.
It’s well-known that the Federal Reserve recently made an abrupt dovish turn and began slicing interest rates after citing plans to hike more not long before that. The shift in policy was almost unanimously interpreted as a sign that the Fed is being looked to as the sole savior to keep the U.S. economy afloat as trade relations with China worsen.
To Aslam, President Trump’s recent speech at the G7 summit affirmed that neither side will back down from their trade terms, a notion that already seemed evident after the President’s meeting with Xi Jinping at the G20 summit in June.
Now, domestic investors are worrying that the Fed’s response to the trade war will bring U.S. Treasuries to a new low. The recent inversion of the Treasury yield curve was seen by most as a tell-tale sign that a domestic recession is underway. According to Aslam, speculators are placing big bets that the previously-robust 10-year Treasury will fall into negative territory by 2021, following the path of many other negative-yielding bonds around the globe.
In the absence of safe havens, investors will have little choice but to flee to gold as global growth slows and the world economy faces another potential crisis. Should Fed officials heed Trump’s call to cut the benchmark rate by another 100 basis points, Aslam is certain that gold is going to blaze past the $1,600 resistance level and reach $1,800 an ounce in the near term.