The gold price could hit $2 000 (R33 930) an ounce this year on geopolitical uncertainty, Umthombo Wealth equity analyst, Sandile Magagula, said yesterday.
He said persistent geopolitical uncertainty generally favoured bullion. This combined with a weak dollar outlook was an element of support for safe-haven demand.
“Bullion has held up strongly, despite liquidity-sapping tightening episodes by central banks,” Magagula said.
Geopolitical risks are the biggest threat to the bullion.
“If real yields haven’t turned positive (inflation is still greater than the Fed rate), gold can remain in this territory if China’s madness doesn’t spill over to Taiwan, the invasion thereof, which could send capital markets into a tailspin on severely constrained global trade-flow. Thus, safe haven demand is not going anywhere soon,” Magagula said.
He said US real yields continued to contract, but remained well in the negative territory, with no realistic chance of gold selling off back to a long-term price of $1 300 per ounce.
“The world hasn’t solved all its problems: the European Union is still going harder on (Russian President Vladimir) Putin, and China is still a big political risk in the overhang on the Taiwan issue, with the potential of delivering global trade to a record standstill.”
Magagula said he believed the invasion of Taiwan by China was inevitable and given the connected world, it “is unlikely that one bad move from China would spare the rest of the world”.
According to Reuters, gold prices eased off from their highest levels in nearly nine- months early yesterday, as the dollar recouped losses. Although expectations of slower interest rate hikes from the US Federal Reserve kept bullion’s positive outlook intact.
Spot gold dipped 0.2% to $1 916.26 per ounce in early trade. Earlier in the session, prices hit $1 929 per ounce, a peak since late April.
Ilya Spivak, the head of the global macro at Tastylive, said gold still saw some support as the market holds the view that the US Fed’s rate-hike cycle was slowing and might come to an end soon.
The Fed raised rates by 75 basis points (bps) four times last year, before slowing to a 50 bps increase in December. Most traders expect a 25 bps hike at the US central bank’s next policy meeting at the end of the month.
Bullion is a non-yielding asset, hence it tends to benefit amid lower rates as it reduces returns on other assets such as government bonds and the dollar.
Investors will also keep an eye out for the US retail sales data due on Wednesday.
Spot gold may rise into a range of $1 933 to $1 942 per ounce, according to Reuters technical analyst Wang Tao.
Meanwhile, Spot silver edged 0.1% higher to $24.28, after hitting a near two-week peak. Silver is a safe-haven asset, but is also used to manufacture goods including solar panels, automobiles, and electronics.
“The growing adoption of green energy sources continues to favour fabrication demand for silver. Silver bar and coin demand continued to be high,” ANZ said in a note.
“We expect silver to perform well, in tandem with gold as investors look for cheaper alternatives to gold,” it said.
Platinum lost 0.3% to $1 061.88 while palladium slipped 1.3% to $1 765.96.
BUSINESS REPORT