With Gold Near $1,325, Is It Time To Buy?
(Kitco News) - This could be a good time to invest in gold as the risk to the precious metal’s prices is “firmly” to the upside, according to Capital Economics.
Gold stands to benefit greatly from any escalation in trade war fears, as an increase in tensions will lead to investors selling riskier assets and buying safe-haven options, said Capital Economics’ commodities economist Simona Gambarini.
“The global economic impact of the tariffs announced by the Trump administration will be small in our view, even if they are implemented in full, which appears unlikely. We also expect that any retaliation will be moderate. But the implications for financial markets, including gold, could be much bigger,” Gambarini said in a note published on Wednesday.
Gold prices tumbled on Wednesday, largely pressured by a rebound in the U.S. dollar and a risk-on investor attitude. As Asian markets opened on Thursday, April Comex gold futures were trading at $1,324.80, up 0.05% on the day, while spot gold on Kitco.com was last at $1,325.60, up 0.09% on the day.
“We suspect that there is a sizeable risk premium currently embedded into gold prices and this could rise further over the next few weeks should fears of a trade war flare up again or relations between the US and Iran or the UK and Russia deteriorate,” she added.
What investors should be watching next is how the U.S. dollar behaves, the note pointed out.
“In the event of a full-blown trade war, the dollar could continue to make headway against emerging market currencies, while simultaneously weakening against its developed market counterparts. In this event, we can expect investors to rotate out of risky assets and into safe havens, with gold a key beneficiary,” Gambarini wrote.
In contrast, if trade risks take a backseat, the U.S. dollar might regain strength and put pressure on gold prices.
Even though Capital Economics projects that gold prices will fall to $1,270 by year-end, the bank pointed out that the risk to prices is on the upside.
“Overall, our end-2018 forecast for the price of gold is $1,270 per ounce, down from about $1,332 today. That said, in the short term we think that as long as the uncertainty remains over a potential trade war, the balance of risks is firmly to the upside,” Gambarini said.