Diwali has come early for gold investors who followed our advice, as prices have soared to a six-year high this week.
But even If you did not, don’t just rue your poor judgment. There is probably still time to catch the rally.
While gold climbed to $1,400/Troy ounce on Friday —a level that many anticipated would be reached only by the year-end— fresh developments show that it is expected to reach $1,500/Troy ounce now by the year-end.
What has changed since our last commentary on gold ?
Global institutions are getting increasingly worried about economic growth prospects, which in the past week prompted the European Central Bank and the US Federal Reserve to strongly indicate monetary easing is ahead this year.
In comparison to earlier expectations that the Federal Reserve would at best hold bank rates this year, expectations are now that there will be a rate cut as soon as July and more through the rest of the year totalling 50 basis points or more.
Dollar value has already sagged this week in anticipation of looser monetary policy, and a further fall is only to be expected when rates are actually cut. Gold prices usually trade opposite to the dollar.
After weeks of tension, stock markets have recovered a bit as US President Donald Trump would be meeting China’s President Xi Jinping at the G-20 summit, but after initial enthusiasm nobody is betting on a quick and early resolution of US-China trade disputes.
Tensions in the Middle East have also flared up after Iran smashed a US drone, a development which is expected to increase prices of crude oil.
Not only are markets likely to be more volatile in coming weeks boosting gold’s appeal, but higher oil prices adds another element as the yellow metal is also considered an anti-inflation hedge.
Speculative long positions on gold futures show that they are currently below the peaks seen during the height of Brexit a few weeks back, which means that there is room to add more positions rather than cutting back at least for some time.
Therefore, if you have not, gift your wife some plain gold jewellery or coins. It’s a win-win strategy whichever way you look at it.
Tip : Watch this space to know why it might be silver’s time to shine.
Bandini Chatterjee, the columnist, is an independent analyst focusing on the ups and downs of the commodity markets.