(Kitco News) - For the third time in as many weeks, gold is experiencing another major rally as investors flee into gold, while demand for other traditional safe-haven assets, including the US dollar and Treasuries, weakens.
The rally in gold started as soon as markets opened in Asia on Monday morning and has continued through the night into the North American shift. Key technical resistance levels have not provided any significant barriers for gold, which is seeing robust bullish momentum. Spot gold is currently trading at a fresh all-time high of $3,413.84 an ounce, up nearly 3% on the day.
Gold is within sight of inflation-adjusted all-time highs, which were set in January 1981 and currently stand at $3,448 an ounce.
One indication of gold’s new bullish momentum is surging investment demand. Last week, SPDR Gold Shares (NYSE: GLD), the world’s biggest gold-backed exchange-traded fund, saw its assets under management surge above $100 billion for the first time in history.
“As volatility and geopolitical uncertainty continue to drive risk-off sentiment, investors are increasingly turning to gold as a strategic safe haven,” said analysts at State Street Global Advisors, the marketing firm of GLD.
This is the gold market’s third 3% gain this month, and this rally is only outdone by its moves in November 2008 when gold prices rallied between 3.5% and nearly 6% during four sessions that month.
In a similar move seen nine years ago, analysts note that gold is benefiting from a weaker U.S. dollar. The selling pressure started overnight and has continued through the North American session. The US dollar index last traded at 98.40 points, its lowest point in more than three years.
At the same time, U.S. 10-year bond yields remain elevated above 4.4%.
Analysts have said that gold continues to benefit as faith in the U.S. erodes due to the ongoing trade war. China has escalated its ongoing conflict with the U.S., saying that it would hit back at countries that give in to US demands to isolate Beijing.
China has also made new trade moves to isolate the U.S. in global commodity markets, slashing its U.S. oil imports by 90% and buying record amounts of crude from Canada. At the same time, China has also increased its soybean imports from Brazil.
It has also proved more difficult for the U.S. to make a quick trade deal with Japan.
At the same time, President Donald Trump’s comments Thursday that he would like to fire Federal Reserve Chair Jerome Powell as soon as possible have also eroded faith in the US dollar, and some analysts have said that the greenback has room to fall further.
“Global confidence in U.S. policymakers is already at a very low point after the tariff rollout; firing Powell should be viewed as a Rubicon that cannot be crossed if any shred of confidence in the Fed (and the U.S.) is to be maintained,” said currency analysts at Brown Brothers Harriman in a note Monday.
“The FX market is always the quickest arbiter of bad policy decisions in a country. Why would a global investor want to hold assets in a country where central bank independence is at risk? We know that the Trump administration has wanted a weaker dollar all along, but it is coming for all the wrong reasons,” the analysts added.
Looking ahead, some analysts have said that gold has momentum and room to hit $3,500 an ounce.
“Gold has been on the offensive since touching the 50-day moving average early last week. We view the latest rally as the completion of the correction from the late December spike. The upside potential allows us to expect quotes above $3,500,” said Alex Kuptsikevich, Chief Market Analyst at FxPro, in a recent note.
In a recent comment to Kitco News, Eric Strand, founder of the boutique precious metals firm AuAg Funds, said that in the current environment, gold continues to look cheap under $4,000 an ounce.
Thu Lan Nguyen, Head of FX and Commodity Research at Commerzbank, said in a recent note that she expects gold prices to remain well supported as economic uncertainty weighs on growth, forcing the Federal Reserve to cut interest rates.
“Powell dampened expectations of rapid interest rate cuts and pointed out that the tariffs increased the risk of inflation. Nevertheless, the market is sticking to its view that the Fed will cut interest rates as early as the summer. As long as no agreement can be foreseen between the US and its various trading partners on reducing tariffs, the market is unlikely to abandon its economic fears and thus its expectations of interest rate cuts any time soon, which suggests that the strength of gold will continue,” she said.
