If there has been one commodity or precious metals that have done well for itself, it’s gold. The yellow metal has gained over 20 percent so far in 2019 with most of these gains coming from the second quarter. Spurred on by reoccurring recession fears, prices for gold reached fresh records at $1,548 per ounce and with there being no signs that this will slow down, experts are already saying that gold will reach $1,600 soon.
Gold prices move in contrast to interest rate cuts from the Federal Reserve, and further cuts from the central bank would be a key reason why gold prices could rise well beyond $1,600 in the months to come. That’s exactly what Harry Tchilinguirian, head of commodity research at BNP Paribas. In a research note to clients, the analyst said that the appeal of holding gold grows as interest rates fall, giving less incentive for investors to put their money into bonds and other investments and more reason for them to keep it safe in the form of gold.
With continued cuts in the nominal interest rate, “real rates will move and stay in negative territory, raising the appeal of holding gold,” the analyst said. The other major factor influencing the yellow metal has been the ongoing trade conflict, with investors in both countries looking to gold as a safe haven to store their wealth. “The trade war is unlikely to be resolved quickly. In this context, gold has resumed its traditional role as a safe-haven asset.” At the same time, holdings in gold-based ETFs are getting close to peak records not seen since 2012.
Investors will learn more about what the Fed’s monetary policy going forward will be later this week when John Williams from the New York Fed will speak alongside Chair Jerome Powell. So far, the general consensus among the central bankers is that the U.S. economy has remained fairly strong, despite the growing risks and warning signs in the international markets.
There’s no lack of bearish signs in the global markets if you know where to look. Faltering manufacturing data from both China and the U.S. has weighed on investors, while the ever more frequently occurring inverted yield curves haven’t helped either. Prices for industrial commodities such as copper have reached multi-year lows recently as well, a further warning as these metals have long been successful predictors of economic downturns.
Gold prices had been rising in the first quarter of 2019 before tumbling back down, loosely following another precious metal, palladium, which had a dramatic bubble which burst early in the year. Since then, gold has languished for a while in the high $1200s and low $1300s before staging a comeback as fears in the markets continued to grow.
At this point, the situation for the precious metal has never been better, with some analysts saying that a price near $2,000 per ounce could become a reality. While that might seem like an overly bullish estimate at the moment, there’s a strong case to be made that gold could at least break its former 2011 record in the next 12-24 months.
