Gold hit its highest level in six years last week, as the price soared to $1,452 (£1,157) on Thursday. Gold prices also gained today after a small fall over the weekend, after tensions in the Middle East and weak financial markets.
US Interest Rates
President Trump piled the pressure on the Fed last week, illustrated in a series of tweets, calling for a cut in interest rates. The US looks to be heading towards a possible round of cuts when the Fed meets later this month, and possibly by even as much as 50 basis points (0.5%) by September. This has then led to a major fall in bond yields, the interest rate bond issuers pay out. Many bonds are now negative yields and so, consequently, many investors are turning their eyes to gold.
Tensions in the Middle East over the weekend seem to be supporting gold prices, after Iran stated they had captured a British oil tanker in the Gulf. This comes after Britain seized one of their vessels earlier this month, and now means tensions have been heightened along an extremely vital route for the shipping of oil. On Friday, Iran denied the shooting down of one of its drones by the US in the Strait of Hormuz (the strait between the Persian Gulf and the Gulf of Oman) which has amplified tensions in the region and made investors nervous. The price of crude oil has already risen due to the reported shooting down of the drone.
The pound has weakened since the resignation of Theresa May as Prime Minister and markets are increasingly concerned about the possibility of the UK heading towards a No-Deal or Hard Brexit. Reports suggest that if this scenario happens, the pound could possibly fall further, along with investor confidence, which could mean more safe-haven interest in gold.
The interest in our favourite precious metal has rarely been as high as it is now. The possibility of a weaker US dollar due to falling interest rates, as well as those negative yielding bonds, means gold’s zero-yielding nature looks increasingly attractive to investors.
With all the ups and downs in the geopolitical climate at the moment, investors put their faith in precious metals as their ‘safe-haven’. Brexit, interest-rate cuts, tensions in the Middle East, Trump’s presidency, as well as the ongoing US trade wars, all seem to have the world on edge. Safe havens such as gold are soaring and have rarely been so attractive.
So, where will gold go from here? Could we once more see the highs we saw in the summer of 2011? We’re not far off.
Could it spike even higher? Let us know your opinion.
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.