Gold Is Looking To Get Its Safe-Haven Allure Back - Analysts

June 23, 2018

New York (June 23)  As gold struggles to find support after hitting a six-month low earlier this week, analysts are waiting for a reawakening of the metals’ safe-haven appeal amid a complacent market in the face of trade war fears.

The yellow metal was unable to find a bid this week despite heightened trade tensions and market uncertainties, largely weighed down by the rallying U.S. dollar. August Comex gold futures plunged from a high of $1,313.00 an ounce on June 14 to a low of $1,262.40 an ounce on June 21.

Analysts pointed to various reasons as to why gold is not behaving like a safe-haven asset at the moment.

Some of the working theories for lower gold prices are strong U.S. dollar, hawkish Federal Reserve, market complacency, and gold acting like a raw commodity.

Greenback vs. Gold

Capital Economics commodities economist Simona Gambarini told Kitco News that it is all about the U.S. dollar for gold and any future price moves (trade war or not) will depend on the direction of the greenback.

“The [gold] positives can be muted at times because the end effect depends on the dollar. The gold price did not rise by much despite uncertainty and geopolitical risks,” Gambarini said.

But, if any further development in the trade war rhetoric hurts the U.S. dollar, gold prices will finally be able to surge past the $1,300 an ounce mark, she added.

“Trade tensions, in general, are likely to impact the dollar, safe-haven demand, and demand for inflation hedges,” she noted. “Possible escalation could be positive [for gold] because of the uncertainty. At the same time, trade tensions that involve the U.S. should be inflationary for the country and that should also be positive for gold prices.”

The Fed also continues to play a big role for gold, encouraging additional weakness. Analysts are viewing the Fed as more hawkish now, as it upped its forecasts to another two rate hikes this year.

“The hawkish outlook is capping any real gold rally because the precious metal has a problem competing with higher rates,” George Gero, managing director at RBC Wealth Management, said on Friday.

Market Complacency

The gold market has been behaving contradictory to its well-tested assumptions this past couple of weeks — as geopolitical uncertainties rose and gold prices declined.

It is rare when the yellow metal is unable to attract interest based on the asset’s traditional safe-haven appeal, which is why analysts started to blame the event on market complacency.

“Market participants are either incredibly complacent or they have decided that there is also plenty of positives around,” ABN Amro chief economist Han de Jong said in a report on Friday. “The main positive is that global growth is reasonable, inflation remains unthreatening and central banks are relatively predictable. But the growth picture has been increasingly challenged in recent months.”

Chief market strategist at Todd ‘Bubba’ Horwitz told Kitco News on Thursday that there was no fear in the market.

“It’s just been sell gold at all costs,” Horwitz said. “The entire market system right now is a little bit complacent … We’ve broken down and violated a lot of the key levels in gold. And the next real level I’d want to step in is around $1,240.”


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