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A GOLD(EN) STORY: OUTLOOK ON GOLD PRICE FOR H2 2019

 

We are medium-term bullish on Gold as we believe the yellow precious metal is currently trading in an environment that bolsters its price further upwards.

Gold due to its intrinsic value is regarded as a safe-haven asset – that is, in times of increased market risks, investors are seen moving their portfolio to assets they consider “safe” as a result of “flying for safety” activities. However, in the case of Gold, this isn’t always the reality – for instance, during a heightened-risky 2018, Gold didn’t seem to catch on any significant bullish momentum (capital inflow) and was seen to even depreciate for the most part of the year despite its inherent “safe-havens”. Why? Aside risk-driven influence on Gold prices, the US Dollar is also a determining variable.

Reserve Currency Status

The US Dollar is the world reserve currency. As a result of this, popular commodities are often quoted and mostly settled in USD; Gold isn’t an exception. Basically, investors outside the US in need of Gold would need to first change their local currency to the USD to feasibly trade the precious metal. That is, in effect, the strength and weakness of the greenback affect the purchasing power of gold investors.

 

USD vs Gold

Now reverting back to the most recent example mentioned above, despite heightened market risk in 2018, Gold prices depreciated because of a strengthening USD. The Federal Reserve was amongst the very few (and the only one amongst the G10 economies) that started normalization – interest rates hiking. As a result, high growth-differential between the US and the Rest of the World (RoW) encouraged that carry-trade effect thus increasing capital flow into the USD. In short, we had a solidly appreciating USD in 2018 and that was to continue into 2019 as the Fed’s forward projections as at the third quarter of 2018 was a further 3-4 rate hike in 2019. Nevertheless, the monetary policy stance of the Fed since its December 2018 FOMC meeting has completely deviated from hikes to holding and now to cutting – a 360® rotation if you put it lightly.

Gold for the Bid

With market risks even higher than 2018 and now have an easing Fed – as we believe they would continue to ease all through the remainder of 2019 at least. We see the combination of these fundamentals a perfect recipe for a bullish Gold. Technically, the price has broken above a 3-year resistance area (highlighted in yellow) [see weekly chart below]. If the aforementioned fundamentals remain the same, we expect this resistance area to serve as new support to further push the price to the $1,500; $1550 and $1650 price areas as our plausible end of the year targets.

 

Weekly Chart (W1) Showing Gold Price

 

 

 

Source: Chart created by Uchenna Minnis using Marketscope

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