Gold's $1,500 level is 'looking like the new 2020 floor' - Scotiabank
(Kitco News) Gold's strong start to the year has put prices well above the precious metal's previous hard floor of $1,450 an ounce, said Scotiabank.
“$1450 was the new hard floor but gold is now firmly in a spot where the risk/reward in being directionally short is not favorable -- $1500 is increasingly looking like the new 2020 floor…,” wrote Scotiabank commodity strategist Nicky Shiels last week.
Overnight gold prices neared seven-year highs as February Comex gold futures hit $1,613.30 following an Iranian missile strike near U.S. troops in Iraq.
In the latest move, gold retreated around 1% on the day to $1,558.30 as U.S. President Donald Trump said Iran “appears to be standing down” in a speech on Wednesday.
The consequences of the escalating U.S.-Iran tensions could be in the form of “a tit-for-tat retaliation cycle that ultimately argues for larger supply-side risks to be priced into Oil and for a larger geopolitical premium into gold,” the strategist pointed out.
Gold is “smart,” noted Shiels when talking about the metal’s year-end strength and trading patterns.
“Gold’s repricing was aligned with a shift in the Fed in 2H'2019, but elevated pricing also incorporates the potential threat of 'fear drivers' such as trade, political/ geopolitical & growths risks re-emerging, which markets have learned can play out at the drop of a tweet at any point,” she highlighted.
The yellow metal’s trading patterns and drivers help when looking at gold long-term.
“The ability for gold to consistently adapt from internalizing old drivers (escalating trade rhetoric, negative risk appetite and moves in rates in Q3'19) to new drivers (falling US$, upping of inflation expectations, curve steepness, EMFX & commod FX strength in Dec 19), back again to internalizing its haven qualities (today) is a constructive development for the longer-term outlook,” the commodity strategist said.
Gold is also starting to see strong seasonal investor inflows that will likely continue into 2020, Shiels added.
“Fresh geopolitical risks will to be appropriately priced into relatively fairly priced havens (there’s a rethink around negatively yielding European debt undermining their safe haven role) and global markets are only fully 'back to school' next week - mid January,” she wrote.