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Mexico, U.S. Trade Deal Is Boosting Gold Amid Renewed Optimism On Global Trade - Analyst

Kitco News

(Kitco News) - A potential trade agreement between U.S. and Mexico is helping to boost gold prices, with economists now eyeing China-U.S. trade news for progress as well, according to one commodity analyst.

While many analysts have pointed to U.S. dollar strength as the biggest headwind for gold, Maxwell Gold, director of investment strategy at ETF Securities by Aberdeen Standard Investments, said in an interview with Kitco News that he sees weakness in the Chinese yuan as the biggest influence on gold.

He added that the trade deal between the U.S. and Mexico adds some optimism that the U.S. and China can work through their differences and end the current trade war. Renewed optimism on global trade comes after talks between low-level Chinese and U.S. officials went nowhere last week.

“If we see a resolution between the U.S. and China, that will go a long way to stabilize the yuan, which will help gold prices,” said Maxwell.

Along with optimism in global markets, the yuan hit a four-week high Monday as the People’s Bank of China used counter-cyclical factor” in its daily fixing to support the yuan.

Gold’s comments come as the yellow metal has been able to extend its gains above the critical psychological level at $1,200 an ounce. December gold futures last traded at $1,215.70 an ounce, up 0.21% on the day.

While gold prices are trading near a two-week high, Gold said that more needs to be done before the price sparks a much anticipated short-covering rally. The latest trade data from the Commodity Futures Commission showed that money managers extended their net-bearish speculative positioning for the ninth straight week.

“While there is massive potential for a short-squeeze, I think gold prices need to stabilize between $1,225 and $1,230 an ounce before short-sellers start to get uncomfortable,” he said.

While growing optimism on global trade is helping to create some short-term momentum in gold, Gold said that a return to market fundamentals -- in particular more attention being paid to rising inflation pressures -- will bring more long-term investors back to the marketplace.

“There is a lot of complacency among investors right now but they need to pay more attention to inflation at this late-stage in the business cycle,” he said. “Not only are we expecting to see a rise in surprise inflation pressures but we are also expecting to see higher volatility heading into the year-end.”

Along with rising inflation pressures, Fed Chairman Jerome Powell’s comments last week at Jackson Hole Wyoming indicate that real interest rates will remain low, making gold, a non-yielding asset, more attractive.

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