Gold Gains Momentum on Global Cues

Gold prices hit their highest levels in more than a week on Tuesday, April 9, after it emerged that the macroeconomic scenario might take a turn for the worse. The spot price of gold increased half a percent to nearly $1,304 an ounce, which was the highest level seen since March 26 when the yellow metal’s spot price had exceeded $1,306 an ounce. U.S. gold futures were trading at a higher $1,308.30 an ounce on Tuesday.

Let’s take a closer look at the reasons why the gold price shot up earlier this week.

Global Economic Uncertainty Will Drive Gold Purchases

According to the International Monetary Fund’s latest World Economic Outlook, the global economy will grow at a pace of 3.3% in 2019. That’s down from the IMF’s previous forecast for 3.5% growth that was issued in January this year, which means that the agency has slashed its outlook for the third time in six months.

The IMF’s latest forecast also means that the global economy is on track to record its slowest pace of annual growth since 2009. However, the agency expects global economic growth to pick up the pace in the second half of the year, before hitting a growth rate of 3.6% in 2020. However, the forecast for next year should be taken with a pinch of salt as the IMF believes there are quite a few headwinds that could derail global economic growth.

For instance, Britain’s hard exit from the European Union and no resolution to the trade tensions between the U.S. and China could destabilize the global economy. Moreover, the U.S. economy also seems to be slowing down as evident from the weak employment data and declining demand for American-made goods.

In such a scenario, the flight to safety has begun, prompting an increase in demand for gold. China has raised its gold reserves for the fourth month in a row in March, and it won’t be surprising to see further buying activity across the globe. Russia’s gold reserves, for instance, hit a five-year high at the beginning of April.

What Does This Mean for Gold Pricing?

Societe Generale believes that gold prices could hit $1,400 an ounce in the first quarter of 2020.

Gold prices rise in times of economic uncertainties and distress, sending central banks into a gold buying spree. Central bank buying increases demand for gold, while retail and institutional investors also start building up their gold positions to hedge against the end-market uncertainty.

Moreover, the likes of the Federal Reserve and other central banks keep rates low when the economy is not in good shape. All of this creates an ideal scenario to purchase gold. Given the fact that gold is in tight supply because of a decline in discoveries, the price of the precious metal will rise on account of favourable market forces of demand and supply.

As such, it won’t be surprising to see the gold price scale new highs in the future. Societe Generale, for instance, believes that gold prices could hit $1,400 an ounce in the first quarter of 2020. Considering all of this, there could be no better time to be a gold investor as there are several ways to take advantage of a rise in its price.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.

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