Gold surged over $1,436/oz this morning, it’s highest level in almost six years as an escalation of US sanctions on Iran added to heightened geopolitical uncertainty and uncertainty in global markets.
Market participants are also concerned about the G-20 summit this weekend where it is hoped that President Donald Trump and China’s Premier Xi Jinping will meet to discuss the deepening trade war.
Gold has closed above $1400 for the first time since 2013 as investors diversify into safe-haven gold to hedge the growing global risks including the risk of much looser monetary policies again and of zero percent and negative interest rates.
The Fed and ECB have suggested there may be interest rate cuts and other central banks also pivoted to a more dovish position. Investors have responded by buying gold bullion coins and bars, allocating funds into gold exchange-traded funds and greatly adding to net long positions in US gold futures and options.
The outlook for gold is very positive in the coming months, however, we would be concerned that this rally may have overextended itself. It may be vulnerable to a correction in the short term, specifically in the next few days prior to month end.
We would like to see a monthly close above $1,400 at the end of this week which marks the end of June. That would be very bullish from a technical perspective and would likely propel gold even higher next week. A correction in the short term may mean that a slightly longer period of consolidation is needed prior to moving to higher levels and moving to test the $1,500/oz level.
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