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The biggest bad news out there’: Gold eyes U.S.-China trade tensions next week

The biggest bad news out there': Gold eyes U.S.-China trade tensions next week

Gold prices are back in the rally mode Friday, rising above $1,750 an ounce, with analysts looking for more gains next week as U.S.-China trade tensions ramp up and the economic data worsens.

The rise in U.S.-China tensions is "the biggest bad news out there," and gold tends to rally on that, said Gainesville Coins precious metals expert Everett Millman.

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Trade tensions surged to new levels at the end of the week after U.S. President Donald Trump said on Thursday that he had no interest in speaking to Chinese President Xi Jinping while adding that he could potentially cut ties completely with China. Trump has been calling out China, stating that he is disappointed with its failure to contain coronavirus.

Tensions ramped up further on Friday when the Trump administration announced that it is moving to block shipments of semiconductors to Huawei Technologies from global chipmakers. In response, China said it was ready to place U.S. companies on an "unreliable entity list," which could include Apple, Cisco Systems, and Qualcomm. China also said it could suspend purchases of Boeing Co airplanes.

Going forward, the U.S.-China issue will once again become a big deal, Millman told Kitco News. "I don't see those tensions improving. If anything, the longer we have any kind of problem with coronavirus, the more it will ramp up that rhetoric between the U.S. and China," he said.

For gold, the next step is to reach the $1,800 an ounce level, which is now just a question of time, said FXTM market analyst Han Tan.

"The coming months remain paved with downside risks and the threat of chilling U.S.-China relations amid this global pandemic will only further inhibit global risk appetite," Tan noted on Friday. "Gold's path of least resistance remains to the upside, so hitting the $1,800 handle is just a matter of time. A host of potential positive catalysts for Bullion remain in the offing, including … a spike in US-China trade tensions."

The $1,800 target is even possible next week, if we see further outflows from the U.S. equity funds, said Blue Line Futures chief market strategist Phillip Streible. "Gold looks like it is starting to gain some momentum. We should continue to see investors pile in," Streible said.

At the time of writing, June Comex gold futures were trading at $1,756.90, up 2.5% on the week.

 

Anna Golubova
Kitco NEWS

 

 

 

David

There’s one major reason why you shouldn’t sell gold right now, strategist says

There’s one major reason why you shouldn’t sell gold right now, strategist says

Gold prices have recently hovered at seven-year highs after the U.S. killing of Iranian military commander Qasem Soleimani, which spiked tensions between Washington and Tehran in the Middle East.

Analysts have been broadly bullish on gold of late, with Goldman Sachs setting a base case for it to trade at $1,600 per troy ounce (toz) in the coming months.

GP: Gold and Silver Casting at the Perth Mint 190918

Gold bars sit in a vault at the Perth Mint Refinery in Perth, Australia, on August 9, 2018.

There are lots of reasons to bet against the gold price rally at the moment but one key reason not to, according to Longview Economics CEO Chris Watling.

Gold prices have recently hovered at seven-year highs after the U.S. killing of Iranian military commander Qasem Soleimani, which spiked tensions between Washington and Tehran in the Middle East and forced investors into traditional safe-haven assets.

Speaking to CNBC’s “Squawk Box Europe” Friday, Watling cited one of the reasons to “short” the precious metal was the beginnings of a cyclical recovery in the global economy.

“What really determines the gold price is typically real interest rates, Fed funds interest rate expectations and things like that, and I think we can price out a cut from the Fed funds curve, I think we’re going to get TIPS (Treasury Inflation Protected Securities) yields moving up this year, and actually it’s quite a consensus ‘long’ now, so all of that is a good reason to sell it,” Watling said. Shorting an asset refers to a trading strategy where investors bet that its price will fall, rather than rise.

Gold is often used as a hedge against inflation, in other words, to protect the decreased purchasing power of a currency resulting from its loss of value due to rising prices.

The U.S. Federal Reserve has halted its cutting cycle, keeping its benchmark overnight lending rate in a range between 1.5% and 1.75% in December and projecting no moves in 2020. The central bank had cut rates three times in 2019.

Three reasons to like gold, says Goldman Sachs

However, he suggested that the one key reason not to bet against gold prices continuing to climb would be the Fed’s repo program, an ongoing operation to soothe the overnight lending market.

“It is putting a lot of liquidity, a lot of dollar money, into the system, and that is supporting the price,” he added.

Analysts have been broadly bullish on gold of late, with Goldman Sachs expecting a base case for it to trade at $1,600 per troy ounce (toz). Spot gold was trading down around 0.2% at $1,549/toz on Friday after tensions between the U.S. and Iran slightly abated.

However, Goldman’s Global Head of Commodities Research Jeff Currie told CNBC’s “Street Signs” on Friday that with the right combination of circumstances, gold could push even higher through 2020.

“Gold is a hedge against debasement and what we saw in 2011 was debasement, printing too many dollars and the real rate goes down, down, down, which then pushes up the price of gold,” Currie explained, adding that another crucial factor in play on that occasion was a substantial weakening of the dollar, which further propelled gold prices.

“If you do see that, the potential to push gold back up into that $1,800-$1,900 range becomes pretty realistic,” he added.

 

Elliot Smith

David