Spurred on by investors worries regarding the trade war escalation as well as a weakening global economic outlook, gold prices had a remarkable day on Wednesday as prices surged to new highs. Prices for the precious metal broke the $1,500 price range, destroying previous resistance levels in the mid $1,400’s and opening the door to further price jumps.
Gold futures jumped by 2.6 percent to their highest levels seen since 2013, extending the precious metal’s gains to around 18 percent so far for the year. Most of this is due to trade tensions, with precious metals being one of the main beneficiaries of the turmoil in the financial markets as Beijing and Washington spare over trade details.
A recently announced hike in tariffs on $300 billion worth of Chinese goods has rekindled worries. At the same time, the U.S. government branded the Chinese nation as a currency manipulator on Monday.
The designation, first used by America back in 1994 against China, is more of a symbolic move than anything else. However, it does serve to ramp up pressure on a trade war that shows no signs of slowing down.
Coupled with other factors such as the return of the dreaded inverted yield curves, a phenomenon where short-term 3-month notes have a higher yield then the 10-year Treasury benchmark, markets have been especially anxious, fueling gold’s ascent.
Analysts at Goldman Sachs went on to say that they think $1,600 is just around the corner over the next few months as investors flee to safe havens. “If growth worries persist, possibly due to a trade war escalation, gold could go even higher, driven by a larger ETF gold allocation from portfolio managers who still continue to under-own gold,” said Goldman Sachs analyst including Sabine Schels in a note Wednesday according to Yahoo Finance. “Gold ETFs have recently built momentum almost as strong as in 2016, and we believe that can be maintained in the short-term.”
Last week, Bank of America analyst Michael Widmer went on to predict that gold could hit $2,000 per ounce sometime in the next couple of years but didn’t expect for the price to spike past $1,500 suddenly on Wednesday. Prices went as high as $1,522.70 before settling at $1,519.60 on the Comex in New York.
Gold demand is also being bolstered from central bank buying in China, Russia, Poland, and Kazakhstan, who have been setting records in terms of the quantity they are purchasing even back in 2018.
All this has made bullion a fan favorite among many veteran investors. Billionaire hedge-fund manager Ray Dalio of Bridgewater has suggested in the past that these market conditions could be the starting point of a drastic surge in the price for the yellow metal going forward.
Gold prices reached an all-time record of $1,912.17 in the spot market back in 2011. While there’s still plenty of room before we reach that point, it’s quite easy to see a situation where prices reach that point sometime in 2020 or even late 2019 in very optimistic cases.
Most importantly, unlike bull runs in other precious metals that proved to be bubbles, as was the case with palladium earlier this year, the fundamentals backing gold are getting stronger as time goes on.
