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Geopolitical tensions and an expected pause in interest rate hikes have investors turning to gold, pushing it past US$1,300 per ounce.
Gold hit a more than eight-month high on Tuesday (January 29), as the US dollar softened before a US Federal Reserve meeting and investors remain concerned about an escalation in US-China trade tensions.
On Monday (January 28), the United States charged Chinese telecommunications equipment maker Huawei (SZSE:002502), along with its CEO and two affiliates, with bank and wire fraud.
Investors now fear that the charges could complicate high-level US-China trade talks, which are set to start on Wednesday (January 30). These concerns have sent investors to seek out the safe haven of the yellow metal.
“There’s plenty of reason to still look at gold as a means to have some protection,” said Ole Hansen, analyst at Saxo Bank.
“The momentum in gold has been established now. We just need to work out how strongly the momentum has been backed by speculative interest,” he added.
Wednesday also marks the beginning of the Fed’s two-day policy meeting, where the US central bank is expected to leave interest rates alone.
Due to the ongoing tensions surrounding global trade and waning business and consumer confidence, market watchers are predicting that the Fed will pause on raising rates.
The yellow metal tends to climb when lower interest rates are expected, as bullion becomes cheaper to hold in the aftermath. Overall, gold has risen more than 12 percent from an over one-and-a-half-year low, which the metal touched in August on the back of volatile stock markets and a softer greenback.
“From a technical point of view, its price is now entering in a ‘new area’, with the return in the US$1,300-US$1,350 range, which was the lateral range where we have seen gold moving in the first semester of 2018,” stated Carlo Alberto De Casa, chief analyst at ActivTrades.
In addition to the tensions between the US and China, the precious metal is also being supported by the United States slapping economic sanctions on Venezuela, which is a major oil producer, and to a smaller degree, Tuesday’s UK parliament vote on the “Plan B” Brexit initiative from Prime Minister Theresa May. May’s last Brexit plan was voted down a few weeks ago when she also survived a no-confidence vote by Parliament.
With no lack of geopolitical concerns affecting the markets, Frank Holmes, CEO and chief investment officer of US Global Investors (NASDAQ:GROW), told the Investing News Network at at this year’s Vancouver Resource Investment Conference, that gold could very well go as high as US$1,500 per ounce in 2019.
As of 12:47 p.m. EST on Tuesday, gold was up 0.44 percent, trading at US$1,308.50 per ounce.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.
