Gold prices advanced on Thursday amid the rising demand for the safe-haven metal on the background of increasing expectations of an interest rate cut by the US Federal Reserve following soft inflation data and on escalating trade tensions between the world’s top two economies.
Spot gold was up by 0.3% at 1,337.41 USD per ounce, as of 03:06 a.m. ET. The US gold futures were also 0.3% higher, at 1,341.40 USD per ounce.
After the previous session’s late pullback, a combination of supporting factors helped the precious metal to regain positive traction for the second consecutive session on Thursday. Numerousness amid fears of a further escalation in the US-China trade tensions continued benefitting traditional safe-haven assets and turned out to be one of the key factors lending some support.
There is strong support on the gold price at 1,330 USD and the precious metal looks to trade upside with expectations of lower interest rates. The data from the Labor Department showed on Wednesday that the US consumer prices barely rose in May, pointing to moderate inflation that together with a slowing economy increased pressure on the Federal Reserve to cut interest rates this year. Fed policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions, slowing growth and a sharp step-down in hiring in May which have led financial markets to price in at least two rate cuts by the end of 2019.
Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the US dollar, making gold cheaper for investors holding other currencies.
Meanwhile, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.5% to 759.70 tonnes on Wednesday from 756.18 tonnes on Tuesday.
The spot gold is expected to retest a resistance at 1,339 USD per ounce, a break above which could lead to an increase to 1,346 USD. In absence of any relevant market moving economic releases, it would be interesting to see if the commodity is able to capitalize on the positive move and aim back towards testing a key barrier near the 1,346-1,348 USD zone, or yearly tops touched in reaction to last week’s weaker US monthly jobs report.
Among other precious metals, silver rose by 0.6% to 14.82 USD per ounce and platinum gained 0.6% to 813.30 USD. Palladium was up by 0.4% at 1,411.90 USD per ounce after hitting a more than one-month high of 1,415.96 USD earlier in the session.
Central Bank demand still supportive for gold
Beyond safety-related considerations, however, there is another factor which should also bolster gold prices in the coming weeks and months. Recently was released that People’s Bank of China has been buying more gold, continuing a 6-month buying spree in May. The central bank increased its gold reserves to 61.61 million ounces in May, from 61.10 million in April, which amounts to an increase of almost 16 tons. China’s central bank has reportedly purchased 74 tons of gold since the end of November.
It should also be noted that central banks around the world have been steady buyers of the yellow metal in the last year. They collectively purchased 651.5 tons of gold in 2018, according to the World Gold Council. This amounted to the highest level of central bank gold purchases in nearly 50 years. Moreover, central banks are among the biggest buyers of gold in 2019, having purchased 145.5 tons of gold in the year to date.
Russia is the largest buyer of gold after having sold 84% of its U.S. Treasury bond holdings. Turkey, China, and Iran are also said to have sold off the US.
Gold price going to 1,700 USD soon?
Another billionaire investor is sounding the alarm for the US and global economies and is looking at gold as the safe-haven play.
Paul Tudor Jones, fund manager and create of Tudor Investment Corp
In an interview, Paul Tudor Jones, fund manager and create of Tudor Investment Corp, said that his favourite trade in the next 12 to 24 months is gold. He added that if the price can break through $1,400 it will push to 1,700 USD per ounce “rather quickly”.
“Gold has everything going for it”, he said. During the interview, Jones said that the global economy, which has been built on global trade, is on the verge of breaking down as global trade tensions continue to escalate