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Gold Bulls “Back in Control” as Values Near 6-Year Highs

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Gold Bulls “Back in Control” as Values Near 6-Year Highs
By John McDonald

As more precious-metals speculators buy up increasingly large amounts of gold, a rally that could take the metal higher than it has been since August 2013 gains steam. Gold values have hovered around $1,400 for several days, but with the Federal Reserve’s interest-rate cut coming in smaller than the markets and investors had hoped and economists warning the Fed is destroying its own credibility along with that of the U.S. dollar, gold is likely to sustain its rise for the duration of 2019, if not longer.

As Edward Moya, a senior market analyst at Oanda Corp., said in a note to investors, “Gold bulls are back in control.” As the U.S. continues to struggle with difficult foreign policy issues in Iran and sensitive trade conflicts with China, investors are unlikely to back off gold investments in the near future. “Planned U.S sanctions against Iran, as well as the coming meeting between American and Chinese presidents, are creating a raft of bullish factors for the precious metal,” wrote Bloomberg reporters Ranjeetha Pakiam, Rupert Rowling, and Justina Vaquez in early June.

As the summer progressed, it was clear their predictions were largely on target. In fact, although Pakiam and Rowling followed up this prediction in the wake of late July’s interest cuts by observing that gold had slowed in its climb “as investors try to make sense of an unclear Fed,” most economists still agree with the two that the deceleration is likely temporary.

Pouring Cold Water on the Markets, Probably Not on Gold

Oversea-Chinese Banking Corp. economist Howie Lee described the Fed rate cut as pouring cold water on the market and causing “a reversal in most asset classes, gold included.” However, gold values did not fall below $1,400 in response. Lee added, “An unclear Fed means confused markets, and I expect volatility to be high in the near term.”

Volatility nearly always means a rise in value for gold, since the precious metal is the original “safe-haven” investment vehicle. At present, it remains only slightly below its July high of $1,454.40, which was the highest intraday measure since May 2013.

U.S. Trade Policy is Keeping Gold Strong

Another factor contributing to gold’s strength under pressure is U.S. trade policy. In the wake of the Fed interest cuts, President Trump announced new tariffs on Chinese goods. He tweeted the tariff will be imposed on $300 billion worth of Chinese goods starting September 1, 2019.

The move sent 10-year Treasury notes plummeting to their lowest levels since 2016, which also bolstered projected gold values since low yields tend to make gold a more attractive asset. 

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