Gold at six-year high

The escalating trade dispute between the USA and China continues to fuel demand for gold. The price per troy ounce of the “anti-crisis currency” reaches its highest level since May 2013 on Monday. But investors should be cautious.

The recent escalation in the trade dispute between the USA and China is driving investors into safe investments even at the beginning of the week. US President Donald Trump had announced that additional tariffs of ten percent would be imposed on Chinese goods worth 300 billion US dollars.

Investors’ growing concerns are reflected in weak equity markets and further declines in bond yields. In stark contrast to the gold price. In times of economic turmoil, gold investors are feeling poodle-happy.

On Monday morning, a troy ounce of the precious metal cost up to USD 1,459 – the highest level for over six years. Calculated in euros, it even reached its highest level since the end of 2012. In the high, one troy ounce cost 1,311 euros.

 

Falling interest rates support the price

“Gold is certainly benefiting from global concerns about the growth outlook and central banks are likely to maintain their accommodative stance, making safe havens like gold desirable,” said Michael McCarthy of CMC Markets. The latest US economic data suggests that the Federal Reserve will cut interest rates again in September.

This also helps the precious metal. Falling interest rates increase its attractiveness because gold does not yield interest and therefore has a natural disadvantage compared to interest-bearing securities. If interest rates fall, this disadvantage is reduced and investors can get over it.

“The rise in the gold price is still accompanied by ETF inflows – last week it was just under 24 tonnes. And also the speculative financial investors continue to rely strongly on rising gold prices”, writes Commerzbank analyst Daniel Briesemann.

 

Caution, gold fans!

Gold fans have truly been through tough times: for almost six years, the price of gold bobbed along in a narrow range of 200 dollars. On several occasions it failed to cross the 1,370 dollar threshold.

This means that this long-standing resistance zone between 1,350 and 1,400 dollars per troy ounce has finally been overcome. Gold should now move in an upward trend.

But beware: at the beginning of July the gold price was suddenly the clear loser and headed for the largest daily loss in two and a half years. This mainly reflected investors’ significantly lower risk aversion after the G20 summit. Such a price correction is also possible again now, if politicians put a spoke in the wheel for gold.