With the fast-rising tensions in the Middle East, Gold seems to have surged to the highest level in more than 6 years.
Goldman Sachs Group Inc. states that bullion offered a more effective hedge than oil to the crisis. Palladium extended gains to an all-time high.
Following the killing of General Qassem Soleimani, Bullion neared $1,600 an ounce as Tehran said it would no longer abide by any limits on its enrichment of Uranium. In addition to this, President Donald Trump also said that he was prepared to strike Iran “in a disproportionate manner” if it retaliates against any US target.
Gavin Wendt, senior resource analyst at MineLife Pty in Sydney stated in an email that gold has entered 2020 with strong momentum. He also added that if you consider the ongoing uncertainty with respect to US-China trade talks and heightened security issues with Iran, gold really is a no-brainer.
Bullion is building on the largest annual climb since 2010, which was driven by a weaker dollar, lower real rates and the trade war’s drag on global growth. The widening fallout from the drone strike on Soleimani is threatening to escalate, denting risk sentiment and sending investors to havens. While Goldman analysts cautioned there was a large range of potential scenarios at this stage, the bank said bullion may prove a better bet than oil.
“History shows that under most outcomes gold will likely rally to well beyond current levels,” analysts including Jeffrey Currie and Damien Courvalin said in a note dated January 6. That’s “consistent with our previous research, which shows that being long gold is a better hedge to such geopolitical risks.”
Spot bullion climbed as much as 2.3 percent to $1,588.13 an ounce, the highest level since April 2013, and traded at $1,579.13 at 11.47 am in Singapore, while futures gained as much as 2.5 percent to $1,590.90. Palladium jumped 1.5 percent to $2,019.73 an ounce, a fresh record, while silver and platinum also rose.
There are other factors supporting bullion. The Federal Reserve is unlikely to raise interest rates anytime within the next six months, which will in turn probably keep a cap on the US dollar – both of which are “extremely positive” for gold, according to MineLife’s Wendt.
Gold miners traded higher. Newcrest Mining Ltd., Australia’s largest producer, rose as much as 4 percent in Sydney, while Northern Star Resources Ltd. gained as much as 2.4 percent and Evolution Mining Ltd. advanced as much as 7.5 percent.
“Palladium, like gold, has been steadily tracking higher over the last two weeks, and the conflict between the US and Tehran seems to have bolstered this,” said Sean MacLean, research strategist at Pepperstone Ltd.