Gold To See Safe-Haven Demand from Trade Tensions

A storm is brewing as the U.S. continues to increase tension with Canada and China.

trade tensions to help gold

According to an article on Kitco, gold is gearing up to gain an additional $15 an ounce in order to overcome the next resistance level. Helping it along the way could be a renewal of trade tensions and a questionable secondary-currency market picture.

After a prolonged period of calm, a storm appears to be brewing as the U.S. and Canada passed their 90-day deadline to form a new draft for the NAFTA agreement. While the White House agreed to extend the talks by an additional 90 days, the situation reminded onlookers of the tense relations between President Trump and Canadian Prime Minister Justin Trudeau.

According to the article, both parties have made it clear that they will not budge on their terms, with Trump going a step further by hinting towards a possible exclusion of Canada from the trilateral agreement should no common ground be found. During his campaign, Trump criticized the NAFTA agreement, calling it one of the worst deals in history. More recently, the President minced no words in saying that Canada was taking advantage of the U.S. and threatening new tariffs in the absence of a mutual agreement.

Trump spoke similarly about the European Union, referring to it as exploitative and hinting towards heavier levies on car and vehicle parts, although no action has yet been made. China, on the other hand, will soon feel the brunt of their trade issues with the U.S. says the article, as the White House prepares to usher in a third round of tariffs on $200 billion of Chinese goods.

Besides trade flare-ups, the article states that gold was also boosted by the murky prospects of secondary currencies, against whom the dollar has weighed on heavily in recent times. The start of September signals an end to summer holidays for many traders and a somber return to their platform after several easygoing months. Hence, September and October are generally seen as months of worry, during which market participants become increasingly cognizant of risks in the global economy.

According to the article, this could lead to traders re-examining their position on secondary currencies and making other risk-off decisions. Some of this seemed to already show on Friday, when the soaring stock market finally gave way to mild profit taking.

The technical chart backs gold’s case, as the negation of the daily price downtrend suggests that the market has bottomed out. In the coming months, traders and gold bulls will keep a close eye to see if the metal can breach the next solid resistance.

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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.

Gold as Protection From Italy’s Exit

Italy’s exit from the EU could spark a financial crisis for the global market

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According to a recent article on Kitco, Italy is the latest country to flirt with the idea of an exit from the Eurozone due to the population’s discontent with various EU policies. Should this scenario materialize, the global market could turn towards a new financial crisis with gold as the most sought-after asset.

In the past, Greece threatened its own split from the EU amid a financial crisis that gripped the country. Likewise, British citizens infamously voted in favor of a “Brexit” in 2016, a process which has yet to be finalized.

Italy’s growing distaste for its EU membership stems from a perceived damaging effect that the adoption of the euro has had on the nation’s economy reports the article. In contrast to other EU member nations like Germany and Greece, Italy has seen its real GDP per capita shrink since the euro was unveiled in 1999.

The rise of populist Italian parties such as the League and Five Star Movement reflects the average citizen’s opinion that EU laws and regulations, both fiscal and otherwise, have done more harm than good to the country. In their recent report, consultancy firm Rosa & Roubini Associates underlined the significance of this trend and warned that an Italian exit from the EU could bring about the next global crisis.

The article states that falling equity prices, spikes in short- and long-term rates and a rise in credit default spread premia are just some of the consequences if Italy proceeds with its departure. Brunello Rosa, CEO of Rosa & Roubini, explained how Italians might still be reluctant to leave the Eurozone and abandon its shared currency system. Over time, however, anti-EU sentiment could grow bolder, driven in large part by the country’s strong exports which give Italy a noted presence on the global market.

While there haven’t yet been any official calls for an Italian exit, the article writes that the issue could come to the forefront in September as the country drafts a new budget to be sent to Brussels. The introduction of a flat tax system, a minimum income policy or another reform of the pension system are all issues that would place Italy’s new government at odds with the EU.

In response, Rosa advised investors to adopt a risk-averse approach and strengthen their defensive positioning for as long as the threat of an Italian exit remains. Rosa highlighted gold as a key asset which, aside from being risk-free, allows investors to hedge their bets and protect themselves against possible corrections in any asset class.

How Gold Prices Could React to a Recession in 2020

Capital Economics sees mounting risks leading to a recession in less than 2 years

recession in 2020 okay for gold

In their latest report on the U.S. economic outlook, research firm Capital Economics said that we may be less than two years away from a recession. According to an article on Kitco, the firm’s analysts are among the voices warning that the Fed’s ongoing tightening cycle could have disastrous consequences for the economy.

Before the markets start winding down, the economists predict a continued uptrend in GDP growth, rounding up to a 2.9% average for the year. But, as the stimulus subsides and the cumulative hikes begin to take their toll, the article states that growth rates should reverse and slump to 2.0% in 2019 and 1.3% in 2020. By this point, the nation will have found itself immersed in a new recession.

As a response, the Fed will have to abandon their current policy and cut interest rates in yet another revival of monetary easing, said the team. Previously, other analysts have pointed to the dismal statistic regarding the Fed’s previous tightening schedules, since nearly all of them culminated in a recession.

According to the article, in such an environment of wealth erosion and general hardship, gold would once again establish its role as a peerless store of value. Capital Economics researchers see other headwinds that could expedite the U.S. economic slowdown while boosting gold, such as a potential collapse of NAFTA or the introduction of more tariffs.

The analysts were critical of the trade standoff between the U.S. and several other countries, going as far as to call it the biggest recessionary threat. In the report, Capital Economics explained how the involved countries continue to provoke one another and that retaliatory responses will eventually lead to a full stoppage of exports.

Capital Economics also dismissed the recent string of promising economic data, stating that this year’s robust growth numbers are a short-term fixture that rests on rocky foundations. The article writes that the Fed already confirmed it would raise rates a total of four times this year, an announcement that Capital Economics’ team views as overly optimistic. Steep rates will pour over into high borrowing costs just as the recent tax cuts lose steam, halting growth and undoing the Fed’s work.

Given the mounting risk, Capital Economics expects gold to finish the year on a strong note by averaging $1,300 an ounce. From there, the yellow metal is expected to proceed to have an exceptional 2019 with an average price of $1,350. As the Fed adapts to the recession by slicing rates in 2020 and beyond, Capital Economics predicts that gold will go on to reach $1,400 an ounce.

World Gold Council Predicts Gold Market to Remain Healthy

In the next 30 years, John Reade expects gold to remain upheld for the most part

gold to rise over 30 years

According to a recent analysis by the World Gold Council, gold should stay secure in its role as a sound investment for the next 30 years, reports Kitco. While the market has ample potential for significant returns in the short-term, many buyers find themselves more concerned with a longer outlook, one that involves planning several years down the line.

While some of the most devoted gold bugs would hesitate to look into the metal’s future as far as three decades from now, WGC’s head of market research John Reade and his team did just that. And as a result, their analysis showed that no other asset will hold its ground as well as gold over the upcoming stretch.

In the period leading up to 2048, the article states that Reade expects the global market structure to remain upheld for the most part, with gold as a prominent part of it. As decades pass, the metal will reaffirm itself as the premium portfolio diversificator by continuing to offer investors a sensible way of hedging their bets.

Reade lists advancements in the field of gold trade as a primary source of demand moving forward. In particular, the analyst is bullish on 21st-century developments in the gold market, which include the creation of several gold-buying platforms. According to the article, a notable feature shared by these platforms is that they are fully backed by physical gold, suggesting that even the most digitalized investors still prefer to pour their money into something tangible.

Reade also mentioned that apps built for gold storage are predictably growing in popularity, given that they allow people in less developed regions to safely store and access gold with a few clicks.

Despite this digital revolution, Reade noted that the pure physical gold market will remain as strong as ever. China and India’s economic boom will play a large role in this, as the two gold-hungry nations should continue setting demand statistics moving forward.

According to the article, the analyst finds China’s economic developments particularly noteworthy and believes the Asian nation stands a chance of surpassing the U.S. However, he ultimately feels that a lack of transparency will subdue the yuan’s chances of becoming a reserve currency and expects the dollar to maintain its position.

As with any market, gold is likely to experience its ups and downs over the next 30 years. But Reade feels that the ever-diminishing mine supply is a major clue in regards to gold’s future movements and predicts this factor will exert enough influence on market sentiment.

“I don’t think people will be disappointed in the gold market 30 years from now,” Reade explained. “You [can’t] take something that has 6,000 years of value and replace it with something new.”

Gold Headed to $1,450 Despite Rising Dollar

Bank of America strategist says a stronger dollar won’t be a hurdle for gold much longer

gold headed to $1450 despite rising dollar

Despite the recent recovery in the dollar, a Bank of America Merrill Lynch strategist sees gold capturing multi-year highs in the near term, reports Kitco. After a steady downtrend which bottomed around the turn of the year, the article writes that the greenback has seemingly recovered some of its luster in recent weeks.

Yet BAML technical strategist Paul Ciana doesn’t believe a stronger dollar will be a hurdle for gold much longer. According to the article, Ciana sees the $1,350-1,375 range as a key resistance level for gold to overcome, and he expects the metal to do that sometime later this year.

Last month, gold came close to breaching this level as it briefly traded at $1,369 an ounce before settling lower. In a recent interview, Ciana explained why the breakout has been years in the making and why he thinks it’s just a matter of time before gold moves to the next stage.

“Gold prices have been forming a six-year long base,” he said. “In the technical world we like to say, the bigger the base, the higher in space. That’s what gold is doing.”

Once gold passes $1,375, Ciana expects the metal to breeze ahead to $1,450 an ounce, a level he says is reachable before the end of the year. Should his prediction come true, gold will climb to its highest point since May 2013.

The article states that an important driver of the breakout will be gold’s ability to travel upwards alongside the dollar. Traditionally, the greenback is known to have a strong inverse correlation with the metal, and gold has posted some of its best performances during times of a weaker dollar.

Ciana said that the two assets will temporarily abandon this relationship to go higher independent of each other. This will be made possible, said the strategist, by the current conditions of the U.S. economy, more specifically the Fed’s monetary policy.

“When U.S. financial conditions are tightening, like they are today, compared to 2015, very early 2015, gold prices actually rallied about 12% and the dollar index had rallied about 6 percent,” he said. “There are situations where they both can move in tandem for a short period of time.”

Ciana doesn’t expect this to last, however, as he sees the rally in the dollar as a temporary relief. Before long, the greenback should correct from current levels and continue along the path it treaded for much of 2017. When this happens, Ciana says the standard correlation will be restored and gold will continue trending up.

Spotlight Group Strategist Claims Gold has Plenty of Room to Run

A buildup of factors in the economy could lead to gold becoming the most desirable asset

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After getting a boost from trade-related tensions between the U.S. and China, one strategist says that gold has plenty of room to run due to other favorable factors. In an article on Kitco, this strategist says these include a buildup of U.S. debt and an aggressive fiscal policy by the Fed that could backfire and worsen the nation’s economic outlook.

Macroeconomic strategist and managing partner at Spotlight Group Stephen Pope outlined to Kitco how the landscape is shifting towards one that favors gold. The most conspicuous among the metal’s tailwinds is the expanding U.S. debt, which currently sits above $21 trillion.

According to the article, analysts have expressed concerns that the explosion of sovereign debt could soon become unmanageable, and Pope believes these warnings are a good omen for gold. The strong correlation between the yellow metal and U.S. debt will become even more significant as the country’s governing officials continue to borrow money.

Pope notes that, despite pressure to cut back on outstanding debt, the government finds itself in greater need of funds with each passing year. Thus far, the Department of Treasury exercised its power to raise the debt ceiling as needed, yet Pope warns that this quick fix can only take the nation’s economy so far.

With the U.S. Treasury announcing that it plans to borrow an additional $1 trillion this year, Pope wonders whether officials truly have a debt limit in mind. As the Federal Reserve winds down their QE program, the Treasury could find itself forced to increase yields exponentially in order to placate creditors.

Besides the looming threat of a default that goes along with such extraordinary debt levels, Pope expects gold to also benefit from the Fed’s agenda. Officials have shown little inclination towards a measured approach this year, with markets agreeing that three to four rate hikes this year can be expected.

Yet the ongoing tightening of monetary policy could soon claim its first victims, says Pope, as risk assets become less appealing with each successive hike. While this will serve to buoy gold as safe-haven assets become more attractive, Pope believes the Fed’s hawkish stance carries additional benefits for the metal.

Other than a government that has to pay more interest on its debt, the article states corporations and individuals will likewise be affected by a tighter borrowing environment. 2018 could see a string of corporate bankruptcies as rates go higher, which, according to Pope, could lead to a sudden spike in unemployment followed by a drop in property prices. He believes such a chain reaction would quickly lead to gold becoming the most desirable asset amid rapidly diminishing economic prospects.