The future direction of gold and other commodities and markets will be set this weekend by the outcome of the offstage meeting between President Donald Trump and China’s President Xi at the G20 meeting in Osaka.
Markets are confident the two presidents will do some sort of deal that will take the sting out of the continuing trade war tensions between China and the US.
At the same time expectations for a US rate cut have also been helping boost markets, although Fed chair Jay Powell seemed to put a bit of a lid on those market-driven hopes this week, hence the weakness on Wall Street towards the end of this week.
Tensions in the Middle East driven by the Iranian – US row have also added to market volatility.
Gold has been perhaps the major beneficiary – up sharply touching a near six-year high of $US1,442.90 an ounce in trading earlier this week but retracing to around $US1,409 on Thursday afternoon.
Despite that easing, gold is still up more than 10% so far in June which accounts for all the 9.7% rise year to date and most of the 12.4% in the year to this week.
In a commentary issued on Tuesday, London-based Metal Focus reckons the current surge in gold has more life in it and sees it driving on into 2020.
Over the past week, a dovish Fed and renewed tensions in the Middle East have sent the gold price comfortably above the psychologically important $1,400 level (touching $1,439 on the 25th as we write), a level last revisited more than six years ago.
While Metals Focus expects further upside, we would caution that near-term headwinds still exist. Even so, the prospects for the gold price appear bright, with gold likely to continue strengthening over the medium term.
“For now though, professional investors have undoubtedly lifted their exposure to gold. In particular, Comex managed money long positions (reported by the CFTC) are at their highest since this March (of 17.0Moz), with gross shorts their lowest since April (at 4.0Moz), taking the net long up to 12.9Moz,“ Metal Focus analysts wrote this week.
“These relate to positioning as of 11th June (the latest available data), and so does not capture investor activity during gold’s charge towards $1,440. As a result, we would expect to see Comex positioning strengthen further, although importantly we do not believe it will eclipse the July 2016 record of 27.3Moz.
“As such, this will leave considerable room for investor positioning to start to grow further later this year, when we believe conditions will begin to turn decisively more supportive of a higher gold price. In particular, as the US economy loses momentum (the impact of the 2018 tax cuts fade and the trade wars start to bite), this will feed through into a sharper drop in equities.
“Elsewhere, many of the tail-risks that have been in place in recent years, that might encourage defensive investments, still remain relevant.
“These, in turn, should encourage a pronounced jump in safe-haven demand, for a range of assets including precious metals. As such, we expect gold to set new highs before year-end, with these gains extending into 2020.” Metal Focus forecast.
So no deal in Osaka between the two presidents could very well spark a surge in gold and perhaps silver. But so to could a weaker US economy in coming months.
