Gold to Gain Relief From Turkey’s Currency Crisis

Uncertainty surrounding Turkey and its currency make gold an attractive buy.

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While gold has found little respite against this year’s strong dollar, an article on Kitco writes relief for the metal could come from financial tensions brewing up in the eurozone. Interest in the metal renewed on Friday as Turkey made headlines with a historic plunge of its currency, the lira.

According to the article, the fall is generally seen as the result of Recep Tayyip Erdogan’s loose fiscal policy which includes an unwillingness to raise the country’s borrowing rates, leading to high inflation. The lira’s fall was expedited when President Trump announced on Twitter that Turkey would be subject to a doubling of tariffs on its steel and aluminum exports to the U.S. Turkey ranks as the world’s ninth-largest exporter of steel, with the U.S. as its biggest buyer of the metal.

Gold gained 1% against the euro soon after the news broke, rounding up to a 1.4% gain against the shared currency for the week. According to the article, Turkey’s financial distress could spread across Europe for several reasons. The European Central Bank listed three major banks with significant exposure to Turkey: Spanish bank BBVA, Italian bank UniCredit, and French bank BNP Paribas. Furthermore, the nation hosts around 3 million Syrian refugees whom, along with Turks themselves, could spill over into European countries amid a nation-wide crisis.

Multiple analysts think that gold is in a good position to change course and post notable gains in the near term. Bill Baruch, president of Blue Line Futures, told Kitco that gold could be close to reversing its losses, stating that a tailwind is building in the metal. Baruch added that he and his firm remain buyers with established positions.

Adam Button, currency strategist at Forexlive.com, agreed that gold is starting to look increasingly appealing to investors, noting that the current situation is ideal for gold to stage its comeback. Button thinks that Turkey’s currency issue will stay at the forefront for some time, leading to more buying in the gold market.

Chantelle Schieven, head of research at Murenbeeld & Co, said that gold is significantly oversold and should rebound towards the end of the year. The article reports that Schieven and her firm expect gold to stay above last year’s lows as the Fed only has a limited amount of room to hike interest rates.

In terms of levels to look for, analysts pointed to a range between $1,220 and $1,236 an ounce as milestones that would potentially herald more gains in the gold market. Jasper Lawler, head of global research at London Capital Group, said that gold is an attractive buy right now since the uncertainty could lead to surprising gains for the metal overnight.

The article states that gold could receive a boost from a number of sources next week, not the least of which are signs that Turkey’s situation will complicate further. Other tailwinds could come from a slew of economic data scheduled for release in the coming week, including U.S. retail sales, regional manufacturing numbers and housing construction data.

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