Gold, now trading above US$1,500 for the first time in six years, is in the midst of a near-perfect storm that no longer makes it dependent on interest rate cuts to continue its stunning rally, analysts say.
Since reaching its year-to-date low of US$1,270 in May, the price of bullion has rallied by more than 20 per cent. In June, gold broke through a technical level of US$1,400 and managed to sustain this level after failing to do so multiple times in the past. On the back of increasing trade tensions between the U.S. and China and what many are predicting will be two successive interest rate cuts by the U.S. Federal Reserve, gold has now shattered the US$1,500 level as well. As of 4:30 p.m. Monday gold was trading at US$1,528 an ounce.
The US$1,600 is now “totally within reason,” said BMO precious metals analyst Andrew Kaip. “If you think about it, we’re almost in a perfect storm for gold right now,” he said.
Gold usually moves in the opposite direction of interest rates, he said, and another cut in September would likely lead to another jump in bullion prices. However, if the Fed does not announce a cut when one is already being priced into the market, investors might panic and look toward the safe haven.
“If (a cut) doesn’t come, there’s a whole bunch of disgruntled investors and they start peeling out of the broader market,” he said. It’s difficult for analysts like Kaip to attach a ceiling to gold prices at the moment because of the unpredictability of the U.S.-China trade war.