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Gold Price Skyrocketing

by Jan 8, 2020Market News

The beginning of the new year has seen a surge in the gold price, and this week the spot price jumped to its highest since 2013. Currently, gold is valued at over $1,600 per ounce. Gold is continuing its rise, which began towards the end of 2019 when sophisticated investors interpreted the Federal Reserve’s stance on interest rates as a sign that the dollar is weakening and is predicted to remain weak or even drop further in value due to low interest rates. This assumption adds to investors’ interest in gold, which is measured by how many dollars can purchase it. A weaker dollar means a stronger gold price, so the demand for the yellow metal is pushing prices higher. In the last quarter of 2019, investors started seeking the proven protection of the safe-haven precious metal as geopolitical tensions increased. For a while now, the US–China trade war has been the focus, and although Phase 1 of the trade deal may fall into place later this month, the deal as a whole is still plagued by severe uncertainty, with the two world leaders seemingly unwilling to give in. The trade war has somewhat fueled the continuous interest in gold, but this effect is insignificant compared to the aftermath of the killing of Iranian general Qasem Soleimani, which threatens to push the already unstable Middle East off balance. Tensions were high enough between not only the US and Iran but also the US and Iraq, with a pronounced fear that the situation could turn into a much larger conflict. Tehran has announced it will no longer abide by any limits on its enrichment of uranium, and President Donald Trump says he’s prepared to strike Iran “in a disproportionate manner” if it retaliates against any US target. With this context, it is understandable how a rocket attack yesterday against military bases that house US troops in Iraq pushed the gold price up by $30 to over $1,600. The increasing geopolitical risks may disrupt the US economy and affect the equity markets, which will add to the appeal of safe-haven assets such as gold because investors use the precious metal as a hedge in their portfolios. Amid these rising tensions, gold may prove a great bet, according to Goldman Sachs: “History shows that under most outcomes gold will likely rally to well beyond current levels, [which is] consistent with our previous research, which shows that being long gold is a better hedge to such geopolitical risks.” Other Wall Street institutions agree. The prediction made a few months ago by analysts at UBS Group AG and JPMorgan Chase & Co. that gold price could reach $1,600 if tensions escalate further, just came through, and according to them, an extension of the rally to $1,655 is “highly likely.”