Price of gold to rally in the second half

OCBC Bank economist Howie Lee

PETALING JAYA: Global analysts and economists are upbeat on gold and expect continuous rally of the precious metal in the second half of the year.

The dovish stance by the US Federal Reserve (Fed) coupled with the uncertainty in global trade tensions and geopolitical risks they said are drawing investors to gold as a safe haven.

OCBC Bank economist Howie Lee expects gold to continue rallying in the second half of the year as macroeconomic conditions remain supportive of further gains. 

"Multiple trade tensions in the world have taken root while global growth environment remains soft. The Fed is expected to cut rates to a certain extent, with it, driving yields and the US dollar lower, in turn possibly further lifting gold prices. 

"Warmongering rhetoric from Iran towards the US is also starting to sound more aggressive. US$1,500 per oz for gold before the end of 2019 does not seem like an unrealistic level, based on current trends and fundamentals," he added.

Gold rallied 10% in the first half of the year, with most of the gains arriving in June. The stars were aligned for the metal to rise, including a fragile global economy, softening global interest rates, a weakened dollar and increasing geopolitical/trade tensions. 

These factors are unlikely to abate in the near-term and are hence expected to continue lifting gold prices higher in the second half, said Lee.

By late June, the choice of safe haven asset has clearly shifted to gold, with year-to-date (YTD) gains outpacing that of treasuries. The metal has mostly stayed above its 2018 closing price for most of the year, but for much of the second quarter the choice of safe haven asset belonged to treasuries. 

However, with yields continuously falling, the preferred hedge shifted to gold in late June as the 10-year UST yields sunk to 2.0%. 

"It is perhaps telling that among the traditional safe havens, most are eking out YTD gains – suggesting that investors remain sceptical of the intermittent risk-on rallies we have witnessed this year," he noted.

Meanwhile, Standard Chartered Bank in its Global Market Brief said it expected further upside in gold. In the short term, the global bank's research team said it would not be surprised to see a pullback to US$ 1,375-1,385, prior to the resumption of its longer-term uptrend 

The shift in the US central bank rhetoric and a weaker US dollar have significantly shifted investors’ view on gold, which had been trading in the US$ 1,150-1,350 range over the past three years. 

"The recent rally to test levels (US$ 1,400) last seen six years ago, combined with dovish central banks, falling yields, rising volume of negative-yielding debt, continuing trade tensions and central bank buying, could trigger further upside price movements, in our opinion," Standard Chartered added. 


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