Perfect Storm of Trade Wars and Cold Wars Will Drive the Gold Price Higher
The gold price has started to recover, posting strong gains on March 6. The gold price per ounce has finally reversed the bearish trend that began in the second half of February to reach $1,332. This increase is at once surprising and anticipated.
The gold price has increased in parallel with the U.S. dollar. The dollar has posted some minor gains against the euro. Despite the European currency’s continued resistance, there are heavy risks ahead, which could hurt the dollar and favor gold.
The Italian election, which has resulted in the victory of anti-eurozone and anti-immigration (or at least in favor of much tougher immigration rules) parties. The tandem rise of gold and the dollar suggest that there’s a real danger of collapse for the European currency.
But if the dollar hasn’t scored big gains after such a significant shift in what was one of the most pro-European Union(EU) countries until not so long ago, it points to a bigger issue. There’s a resurgence of the kinds of risks that make gold the safe asset that it has always been. The fact that gold has gained over two percent in March after a dollar rebound (however minor it may be) may herald a more bullish course for the yellow metal in 2018.
Federal Reserve Chair Jerome Powell recently hinted what Americans can expect for interest rates in 2018: at least three or four increases. Normally, that would put downward pressure on the gold price. Instead, a reversal of the expected trend is happening.
The stronger dollar (or, at least, its anticipation) was supposed to work against pundits projecting higher gold prices. The market has already enjoyed the time necessary to absorb this since January, when a favorable jobs report was issued.
Thus, as Powell dropped hints that he would oversee as many as four rate hikes in 2018, the market had already digested this. Therefore, when Powell makes these hikes formal, the market’s reaction will be mild—unless Powell pulls off a stunt, raising rates much more than the hinted 0.25%.
At This Point It’s All About Gold
The market and the dollar have already absorbed the potential value-enhancing circumstances. As for the factors that will push the gold price higher, they’re just warming up. But at this rate, the gold prospects are heading toward red-hot.