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The price was boosted by US President Donald Trump’s decision to disband two White House business advisory groups, plus the release of the latest Fed minutes.
The gold price rose for a second day on Thursday (August 17), inching up by 0.2 percent. It was trading at $1,286.20 per ounce at 2.30 p.m. EST after surging 0.9 percent the day before.
On Wednesday (August 16), US President Donald Trump’s decision to dissolve two advisory councils following pressure from high-profile CEOs boosted demand for precious metals, as investors moved away from riskier assets and toward safe havens.
“This quashes the initially big hopes that Trump could pursue a business-friendly policy. Ultimately, this could even prove damaging to the US economy,” Commerzbank (LSE:CZB) analysts said in a note.
Gold was also supported by hints that the US Federal Reserve will raise interest rates at a slower pace this year. The latest Federal Open Market Committee minutes, released yesterday, show that some policymakers are concerned over sluggish inflation; they hope to halt further interest rates until it’s proven to be temporary.
“As expected, the minutes of the latest meeting of the US. Federal Reserve gave no indication as to how the Fed might proceed in future. What they did show was the lack of consensus within the Fed, however. The biggest bone of contention is the inflation expectation in the US,” wrote the Commerzbank analysts.
Gold could benefit if the Fed decides to raise interest rates gradually. The yellow metal tends to fare better when interest rates are low and struggles when they increase — that’s because higher rates curb the investment appeal of non-interest-bearing assets like gold.
Continued tensions between the US and North Korea could also push gold up. Most recently, South Korea warned North Korea against “crossing a red line,” and the US said it would go ahead with joint military drills despite pressure from China. Key figures like Ray Dalio have been quick to give advice on how to play gold when geopolitical tensions are running high.
For those and other reasons, some analysts remain optimistic that the yellow metal will continue to rise as the year continues. “Gold is likely to breach $1,300 per ounce as the market prices in a less hawkish Fed, particularly in a risk-off environment,” said analysts at Standard Chartered (LSE:STAN).
Similarly, Rob McEwen of McEwen Mining (TSX:MUX,NYSE:MUX) said a recent interview that he expects the gold price to end the year “hundreds of dollars higher.”
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
