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GOLD .... long overshadowed as a safe-haven but once again screaming its credentials (for now, that is)

June 25, 2019

 

ref :- "PRECIOUS -  Gold jumps to 6-year peak on a weaker dollar, U.S. - Iran friction" , Reuters Markets

 

We can't help keeping a fond eye on the gold market, but that's just a personal history thing. It's certainly not because it's been an obviously good investment in recent years. In fact, one could argue that it's been easier to make money by shorting rallies in the gold price rather than buying into them and that's because the knee-jerk reactions that prompt investors to get into gold in times of strife have just not been sustained. The rallies more often than not have petered out almost as quickly as they appeared.

 

When things have been rolling along smoothly, one look at the performance of stock markets is enough to attract most investor money, and in darker times .... well, as a safe-haven Gold has been a disappointment despite its long tradition in that role. Other instruments have come to be seen as better havens: government bonds, current account surplus-currencies like the Jap Yen and the Swissie, and periodically (for different reasons) the mighty US Dollar, strength in which actively weakens the gold price due to the precious metal being priced in that currency.

 

Not now, though .....

 

Currently trading at $1430 per ounce, gold has posted strong gains for six trading sessions in a row. The price has rallied nearly 10% this month, and over 12% since mid-April. Technically, it has tested key resistance at $1439 and long-term gold-bugs (or perma-bulls) are confident that a further break-out is nigh. Well, they always are .... it's in their nature but at the very least anyone would have to concede that conditions are just about ideal for gold bulls :

 

Sabre-rattling between the US and Iran continues unabated with the former implementing personal sanctions again Iran's Supreme Leader Khamenei. In response, Iran says that as a consequence diplomatic efforts to calm the situation are effectively at an end.

 

The US / China trade conflict shows little sign of abating. There has been some hope that a meeting between the two presidents at the G7 meeting in Osaka, Japan at the end of the week might offer the chance of some progress towards striking a deal, but the word on the street this morning is not optimistic on that score.

 

Tumbling global rates and yields .... we've seen the US 10yr debt yield fall below 2.00%, Germany's make record lows (MINUS -0.32%), and France's move into negative territory for the first time (even with their very sizeable debt issues, one might add).Part of these moves is a consequence of the general safe-haven seeking strategies currently in vogue, but ironically enough as bond prices rise and bond yields fall the comparative attraction of gold, which of course bears no interest, increases. The other factor behind the move in rates and yields is the increasingly doveish tone being struck by central bankers across the globe (apart from 1. Norway, and 2. the UK, who nobody really believes anyway). The issue of "Yield" , which by definition has always worked against the gold price, is becoming even less of a factor.

 

Also key is the weakening dollar of the last week in particular. This is a function of the more doveish noises with regard to monetary policy coming from the Fed of course, but also of the market's belief about how much further, the Fed will actually have to ease policy than they are currently admitting to.

 

So ..... lots of reasons that are supportive of the gold price so why not just buy the yellow metal ? Well, of course the price has already come a long way and may need a breather (i.e a pull-back)  --  technically-speaking, gold is "overbought". Plus the fact that Presidents Trump and Xi Jinping might just surprise us in Osake ..... or Fed Chairman Powell, who is speaking this afternoon, may not come across as dovish as the market expects him too.

 

As ever, there's plenty that might yet go wrong with Gold's re-confirmation as the safe-haven of choice, but beyond the simple rise in price, it's striking how the move has prompted many judges to change their long-held views on the gold market. For instance, Bloomberg will this afternoon broadcast an interview with Mark Chandler of Bannockburn Global Forex, a natural cynic when it comes to the gold price. His view now ? Over $1,700 per ounce .....

 

Could it be that we're headed back to somewhere near those giddy heights of over $1,900 that we saw in 2011 , largely as a result of the Global Financial Crisis ? Seems like a crazy idea, but then again who's to say how deep and of what nature the next crisis will be ..... or if it's just around the corner ?

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