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International Trade will be an important factor in long-term gold price - HSBC

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(Kitco News) - International trade is a critical component of the global economy that gold investors should keep an eye because this will be a factor for long-term gold prices, according to one market analyst.

In a webinar discussion hosted by the London Bullion Market Association Thursday, James Steel, chief precious metals analyst at HSBC, said that a rise in international trade would create an unfavorable environment for the gold market. He explained that rising international trade is a sign of global economic growth, geopolitical stability and positive consumer sentiment.

He added that this environment is positive for the U.S. dollar and equity markets; simultaneously, it reduces the need for safe-haven assets.

“In a case like that, why would you want to own gold? You wouldn’t or not much of it,” he said.

However, on the other side of the spectrum, when international trade weakens, “gold shoots up like a rocket,” he said.

“The outlook for trade is better than it was, but it is still contracting that that is good for gold,” he said.

While international trade is expected to be the barometer for the health of the global economy, Steele said that he is looking at real bond yields to drive gold’s current long-term uptrend. He added that in nominal terms, HSBC economists expect that bond yields on 10-year Treasury notes will hover around 50 basis points for the rest of this year and next.

In this low interest rate environment, he added that it wouldn’t take much inflation to push real yields into negative territory.

“In real terms, interest rates are going to stay negative,” he said. “In the current environment of low interest rates holding a non-yielding asset like gold becomes more attractive.”

Although gold prices are still struggling to find direction caught between support at $1,900 an ounce and resistance at $2,000 an ounce, Steel said that the market appears to be on solid footing as some of the froth and hyperbole has left the market since prices push to record highs above $2,000 an ounce.

Steel said that he has been surprised at how shallow gold correction has been since hitting a record last month. While he doesn’t rule out further declines in the near-term, he said that he sees prices ending the year above $2,000 an ounce.

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