Gold to Shine From Weak-Dollar Sentiments

Market strategist believes the era of the strong dollar is coming to a close.

gold bullish from anti-dollar trade

According to numerous analysts and strategists, gold’s outstanding performance over the past couple of weeks is representative of a bearish shift in the U.S. economy, starting with the greenback itself. Last week, the metal blazed past two strong resistance levels in $1,350 and $1,365 before stopping just shy of $1,425 an ounce reports a CNBC article, hitting its highest level in over six years.

Having himself been bullish on the U.S. dollar until very recently, Bannockburn Global Forex’s chief market strategist Marc Chandler believes the era of the strong dollar is coming to a close. Chandler notes that the Federal Reserve’s actions have expedited the process, citing both the rapid rate hikes and the sudden policy shift.

Indeed, after four years of persistently hawkish rhetoric, Fed officials made a complete turnaround in just a few months and are now hinting at prolonged monetary easing reports CNBC. As Chandler explains, this is bad for the currency and good for gold on a fundamental level, to speak nothing of traders’ sentiment in regards to the Fed’s signals.

Suki Cooper, a precious metals analyst at Standard Chartered Bank, noted that there is much more to gold’s breakout than just dollar weakness. According to the CNBC article, buyers have been coming in across the board, with inflows comparable to the post-Brexit panic of 2016. Like many others, Cooper took note of safe-haven appeal that has increasingly lured investors to gold ever since the tariff conflicts hinted towards a global recession. The possibility that the U.S. will take military action against Iran, as well as the issue’s polarizing effect on Washington, likewise has investors clamoring for safety.

Cooper added that central bank buying is also an ever more prominent tailwind for gold. Although central bankers have amassed bullion since 2010, the recent heavy ramp-up of purchases from the official sector points to both a desire to move away from the U.S. dollar and preparation for a potential crisis.

Mark McCormick, a foreign exchange strategist at TD Securities, sees gold as the safest anti-dollar trade right now. Whereas investors previously had the option to flee to other currencies like the euro, yen or sterling, CNBC reports all of them are looking particularly weak as of late, leaving traders strapped for options. While the G20 summit is still underway, most of the minutes gleaned thus far point to a continuation of this trend, with President Trump himself giving the nod to a weaker dollar.

The dollar’s recent strong run is usually tied to President Trump’s policies, yet Chandler notes that the bull run started during Obama’s presidency. A turnaround could therefore be momentous, with the strategist adding that gold could move to $1,700 if the dollar fulfills bearish expectations. Meanwhile, Cooper and her firm forecast a high of $1,440 an ounce for the metal in 2019. She noted that the outlook could further improve if the G20 summit affirms expectations of rate cuts as early as this summer.