Gold welcome 2020 with a bang

Since May, 2019 gold prices have been ticking high and it seems there is just no looking back. Last year gold prices were driven by recessionary indicators, economic volatility and geopolitical tensions.

Gold demonstrated impressive performance gaining over 17 percent in 2019 and continued to rally  on 31 December.

Major Eurasian nations, including Russia, China and India were seen boosting the yellow metals positions by acquiring and producing bullion.

Gold continued to rally in the current year too. It welcomed 2020 with a big bang. Gold was seen bouncing to fresh highs in a gap from $1551 to a high of $1587.93.

Last week we saw tensions escalating in the Middle East due to the killing of a leading Iranian commander in a US airstrike in Iraq. This brought about an elevation in gold prices following demand for this safe haven asset which is bound to benefit from this crisis.

The U.S.-ordered, and implemented, drone strike which killed Iran’s General Qasem Soleimani outside Baghdad Airport in Iraq had an immediately positive effect on the gold price

The killing of General Soleimani, considered to be the second most important leader in Iran after Ayatollah Ali Khamenei, seems to have been nothing short of a U.S. state sanctioned assassination and will undoubtedly hugely increase tensions, and anti-American feelings in what is a hugely volatile part of the world.

The US drone strike which killed Major General Qassem Soleimani, head of the Quds Force, the Iranian Supreme Leader, Ayatollah Ali Khamenei, said harsh revenge awaited the (US) “criminals”. While US President Donald Trump said over the weekend, America is ready to strike 52 Iranian sites “very hard” if US assets are attacked.

Iran has promised severe revenge and looking from afar it would seem that the U.S. move is likely to increase the dangers for U.S. citizens and allies working in the Middle East and elsewhere in the world far more than any direct threats or actions from anti-American militants located anywhere.

Subsequently, the price of the yellow metal is holding in the $1,550s following a risk-off close on Friday in US benchmarks which moved back from their all-time peaks in response to Friday’s headlines.

This tense situation has come up suddenly. But what still remains in the basket for gold, that it really looks forward to as key influential factors-

  • If there is no Iranian response immediately apparent apart from rhetoric one suspects there will be a correction next week – a view supported by the performance of gold mining stocks on Friday which fell back despite the huge boost in the gold price. .
  • It will be interesting to see whether demand picks up again in China and India this year, which could be key to gold price fundamentals, particularly if there is a slowdown in central bank and gold ETF purchases – not that we are expecting either to happen.
  • The U.S. and its economic progress will probably remain the principal gold price driver in 2020, and this is somewhat uncertain at the moment.
  • Government data tends to remain mixed and the price has been moving up and down accordingly.
  • Likewise perceived progress, or otherwise. In the U.S./China trade negotiations will likely be a factor too.  We do expect a Phase 1 accord to be signed in 10 day’s time which could be another negative for the gold price – that is until the realisation sets in that the principal differences between the world’s two leading economies remain as far apart as ever.
  • The U.S. Federal Reserve and its interest rate policies will also continue to be a price driver for gold, but unless it is seen as likely to diverge from its current cautious policy, and move interest rates up or down accordingly, the Fed may only have a relatively minor role to play as far as gold price influence is concerned in the year ahead.

The calendar year 2019 saw gold advancing 18 per cent — the highest return since CY2010, when it had generated a return of nearly 30 per cent. At this juncture, a break of 1590 opens risk to 1603 and 1632.

Comex gold is gaining its footings in past two years and from $1200 to 6 years high of $1565 that we saw in 2019. This was despite the fact that US and other global equities performed fairly good and hit life time highs. The bonds were also gaining similar tractions, with new geopolitical tensions like killing of the Iranian Commander Soleimani,  there could be a new risk premium opportunity for gold prices and may soon be seen surpassing CY2019 high of $1566 and headed towards $1600-$1625 initially. However this last $50 uptick in 2-3 sessions came from new buying from funds contouring new geo-political risks, so any easing will have an equal negative impact on gold prices.

Leave a reply