Gold Investing

Gold Price on Track to Reach $1,400 by Early 2018

The precious metal is set to surge to a four-year high at the beginning of next year, according to Bank of America Merrill Lynch analysts.

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Priscila Barrera • August 29, 2017

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The gold price surged to its highest level this year on Tuesday (August 29) after North Korea launched a ballistic missile over Japan, turning investors toward safe-haven assets.

The yellow metal’s climb began on Monday (August 28), when geopolitical uncertainty and a weaker dollar pushed it above the $1,300-per-ounce mark. Later that day, gold hit a 10-month high, jumping 1.4 percent to reach $1,325.94 — its highest level since the US election.

“There is increasing expectations for President Trump to counter react to the North Korean aggression, which may further propel the prices upwards,” Mihir Kapadia, CEO of Sun Global Investments, said in a note.

The gold price is on track to climb to a four-year high of $1,400 by early next year, according to Francisco Blanch, head of commodities research at Bank of America Merrill Lynch. Lower long-term US interest rates and a lack of progress by US President Donald Trump in delivering reforms will provide support.

“The Fed may be a little bit more cautious in their stance on raising interest rates for the remainder of the year,” Phil Streible, senior market strategist at RJO Futures in Chicago, told Bloomberg. “There are a lot of uncertainties out there.”

It could be good for gold if the Fed decides to increase interest rates at a slower pace. That’s because higher interest rates increase the opportunity cost of holding non-yielding bullion.

Earlier this month, hedge fund billionaire Ray Dalio recommended that investors to allocate 5 to 10 percent of their portfolios to gold. He mentioned risks including the North Korea situation, as well as the possibility that Congress may fail to increase the US debt ceiling, leading to a technical default.

“We can also say that if the above things go badly, it would seem that gold [more than other safe-haven assets like the dollar, yen, and treasuries] would benefit,” he wrote.

Meanwhile, the US dollar fell for a third day on Tuesday to its lowest level in more than two years, providing additional support for the gold price.

“The US dollar index is being further hobbled by the hurricane damage in Texas, which is likely to reduce US GDP in the third quarter,” Jim Wyckoff, senior analyst at Kitco, said in a report. A softer greenback boosts demand for the yellow metal because it makes commodities priced in dollars cheaper for investors using other currencies.

As of 1:30 p.m. EST on Tuesday, gold was trading at $1,320.90; that’s a 14-percent increase since the beginning of the year.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.