The gold bears have finally bowed under the weight of fiscal and geopolitical catalysts, from Fed hints to the brewing conflict with Iran. But there is a Key trend that stands to push gold up beyond $1,700 regardless of the daily events.
Of course, it’s difficult for the bears to ignore this rally gain gold, which is now trading well above its 6-year high.
Not only has the US-Iran conflict reached a boiling point, with Trump readying to deploy an additional 1,000 troops to the Middle East, but the ECB has issued a Dovish tone, saying it will not hesitate to provide further stimulus, and that means rate cuts.
Forcing the Fed to follow suit, which has clearly indicated that it has not abandoned the idea of rate cuts for Y 2019.Traders are betting in September, October and December.
In this perfect storm for gold prices the market is overlooking a significant trend that will outlast the current geopolitical meltdown and even the Fed’s policies; it is a global push for de-dollarization.
Government’s around the world are becoming increasingly wary of USD’s hegemony in international trade. And they are doing their best to distance themselves from it by using their gold reserves to buy more gold instead.
This process is already underway mainly in nations with strong anti-US sentiment including Russia, China, Iran, Venezuela, Syria, Turkey, Qatar, India, Pakistan, Libya, Egypt and the Philippines + some others.
Naturally, these countries are turning to gold since the precious Yellow metal is not under Lock & Key like the Buck and other electronic payment methods.
This trend is becomes clear when we look at central banks’ buying activity.
According to the World Gold Council (WGC), central banks purchased nearly 70% more gold during Q-1 of Y 2019 than they did during the prior year’s corresponding period.
That is the most they bought since Q-1 of Y 2013.
Tuesday’s gold market
Gold fell as much as 2% in a reversal from 6-year highs Tuesday, after the United States said it would delay tariffs on some Chinese products and on news that both sides agreed to continue trade talks.
- Spot gold was down 0.7% at $1,501.22 oz at 2:00p EDT (1800 GMT), having earlier hit its highest marks since April 2013 at $1,534.31,
- US gold futures settled down 0.2% to $1,514.1 oz.
Gold’s rise to over 6-year highs earlier in the day was triggered by a rout in the Argentine Peso and unrest in Hong Kong.