(MENAFN- Khaleej Times) Fundamental catalysts adding up, encouraging additional reasons for traders to hedge on precious metal. Could $1,300 gold be next?
This is the question on the minds of gold investors, after the precious metal commenced the second quarter in the same fashion as it had performed throughout the opening quarter of 2017, its value having now appreciated by over $100 (from around $1,140) since the first trading day of the year. A rally of over $100 in a matter of months might make some investors ask the question whether they could have missed the boat by not jumping on gold-buying opportunities earlier on. However, technical strategists have noted that the precious metal has surpassed key technical levels and market expectations are now shifting towards the mindset that $1,300 is next on the list.
It is not just a matter of the technicals supporting the bias for a stronger valuation in gold; the fundamental catalysts are adding up, encouraging additional reasons for traders to hedge on the precious metal. The unexpected news late last week that US President Donald Trump ordered air strikes in Syria has resulted in investors pricing in new geopolitical risks into their portfolio. They are not just reacting to the recent events in Syria; they are also considering the possibility of tensions brewing between Washington and Moscow, while also responding to the latest tweet from President Trump, where he was viewed as sending a direct message to North Korea.
Is a new round of geopolitical tensions the only reason why investors are hedging on gold? Absolutely not, just as the gains in gold can likewise not only be attributed to Trump's movements. There has been an ongoing air of concern in the atmosphere throughout the financial landscape for months, with many including myself not being able to justify the recent valuations in major stock markets. This provides another example towards why gold has attracted the attention of traders.
International Monetary Fund Managing Director Christine Lagarde has lately been quoted as stating that the markets dislike uncertainty and this is what is all comes down to - uncertainty. There is uncertainty around politics and the global economy; even recent twists in politics and the rise of the anti-establishment in the developed world could impact the financial markets. We are only a matter of weeks away from the French elections and although Marine Le Pen has seen her chances of being declared the eventual victor diminish, can we really rule this out of the equation after the outcomes of both the US elections and Britain's EU referendum in the past year? While on this point, it is also worth considering that both Trump and those leading the "Leave" campaign heading into the EU referendum were seen as underdogs when voters headed for the polls.
The political landscape in Europe is completely different to what anyone would have expected just one year ago, there is no denying that. The anti-establishment are emerging in numbers and beginning to declare themselves; for investors, this is being used as a magnet to keep gold as a close ally in these uncertain times.
Another factor encouraging additional momentum in gold is the knowledge that UK Prime Minister Theresa May has now invoked the long-awaited Article 50 which in short, can be summarised as the United Kingdom handing its European Union counterparts a letter officially declaring a desire for a divorce.
Moving away from Europe, it is probable that the markets need to begin getting used to the probability that Trump is going to continue dominating political headlines. Previously, international political intentions were just one of the many unknowns when it came to the new US president. Now that the United States has taken action against the Syrian government, investors are going to continue adjusting towards a period of "risk-off", after months of "risk-on" being the name of the game when it comes to the stock markets and optimistic buyers being encouraged by the campaign promises from Donald Trump. When there is a period of "risk-off" in the financial markets, this essentially means less attraction towards the stock markets and more encouragement to look towards safety assets, such as gold and the Japanese yen.
Aside from the unknown nature of how Trump is going to navigate the United States around the issues in international politics, there are still many questions being left unanswered when it comes to his campaign promises. Protectionism is just one of them and it's important to point out that inheriting protectionist policies will have negative ramifications on global growth and productivity. This would also limit opportunities for innovation and investment, while playing a role in preventing improved trade ties around the global economy.
Perhaps the threat of protectionist policies being installed will later be viewed by investors as another reason to hedge on gold, as the precious metal continues to regain its shine throughout 2017.
The writer is vice-president of corporate development and market research at FXTM. Views expressed are his own and do not reflect the newspaper's policy.
MENAFN1604201700490000ID1095394868
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.