Make Kitco Your Homepage

Rising trade tensions show gold’s safe-haven appeal is still strong – Invesco

Kitco News

(Kitco News) - Gold’s safe-haven appeal will continue to shine as risk-on investor sentiment ebbs and flows in the broader marketplace, whipsawed by the ongoing trade dispute between China and the U.S. according to one market strategist.

Kristina Hooper, chief global market strategist at Invesco

Kristina Hooper, chief global market strategist at Invesco said that gold’s safe-haven status was on full display Friday as trade negations hit a stumbling block. Heading into the weekend, gold prices were trading near their highs for the week, last trading at $1,523.6 an ounce, up more than 1%. The rally started after the Chinese trade delegation canceled a farm tour next week and will head back to China earlier than expected.

“It’s news flow like this that is going to have an impact on gold and support prices and will continue to support prices,” she said. “We have seen that gold in recent months is highly correlated to geopolitical developments.”

Hooper added that gold is influenced by trade war headlines because of the impact that it is having investors sentiment. She said the geopolitical uncertainty is creating a level of fear that is starting to impact the global economy.

“There is a growing recognition of the risks in the global economy and gold is becoming more popular,” she said.

Not only are investors becoming more fearful but Hooper added that there are fewer safe-haven assets in the marketplace.

“Gold looks good here because of falling opportunity costs,” she said. “From my perspective, if you are getting negative yield in bonds, suddenly gold looks a lot more attractive.”

Hooper added that the prospects for gold’s opportunity costs look good even as the Federal Reserve maintains accommodative monetary policy. Her comments come after the U.S. central banks cut interest rates by 25 basis points but signaled that it will hold rates steady through 2020.

“Yes the Federal Reserve was more hawkish compared to expectations but it is still extremely dovish given these economic conditions,” she said. “With the economy as strong as it is, you still have a Federal Reserve that was willing to cut rates twice as it has barely normalized.  At the end of the day it’s the absolute rate level that I am focused on because that dictates the opportunity costs for gold.”

Rising inflation even in an unchanged rate environment can push real rates lower, pushing gold’s opportunity costs even lower.

Looking at gold prices, Hooper said that she could see gold rallying to $1,600 an ounce; but because the metal is at the mercy of trade talks and market headlines, she said that prices could bounce in a wide-range between $1,400 and $1,600.

However, Hooper said that the price level is less important than the role gold will play in a balanced portfolio.

“We are looking for broad diversification; we are looking for gold to tamp down some of the volatility in the portfolio because it is a low correlated asset,” she said. “There are clearly compelling reasons to be a tactical investor but for us we are trying to take a more long-term perspective and look at the utility of gold in the portfolio.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.