Gold is back in favour.
Prices have galloped this month, passing $1 400 an ounce for the first time since 2013. It’s become easy to find reasons to be bullish. Everything from dovish central banks, technical indicators, negative-yielding bonds and fears of a military strike between the US and Iran are all working in favour of higher bullion prices.
“There has been a dramatic change in sentiment,” said Adrian Day, president of Annapolis, Maryland-based Adrian Day Asset Management.
Gold for immediate delivery climbed 0.6% to $1 396.97 on Friday after rallying 4.2% during the week, the biggest gain since 2016. Prices briefly topped $1 400, but couldn’t hold the level for long.
Citigroup said Thursday that the enthusiasm is justified with $1 500 to $1 600 an ounce possible in the next 12 months under a bullish-case scenario that includes borrowing costs falling below zero. Strategists at Australia and New Zealand Banking Group joined the club on Friday.
In the longer term, one risk to the market is if the Fed doesn’t follow through with interest rate cuts, said Wayne Gordon, a Singapore-based executive director for commodities and foreign exchange at UBS Group’s wealth management unit. UBS predicts two rate cuts this year, but the market is pricing in three, he said.
Why gold has turned bullish?
- The Federal Reserve opened the door to reducing interest rates this week, leading to a slump in the dollar. Central banks in Europe and Australia also shifted the tone to easy policy ahead.
- More bond yields are turning negative, meaning there’s greater appeal in gold over other assets.
- Geopolitical tensions are heating up. The US called off military strikes against Iran on Thursday night that were approved by President Donald Trump.
- Money is pouring into the market. Exchange-traded funds backed by gold have seen inflows jump since late May.
- Central banks including Russia and China have been on a gold buying spree.
© 2019 Bloomberg L.P.