Chart 1: Central Bank Demand for Gold
Source: Metals Focus, Refinitiv GFMS, World Gold Council
GEOPOLITICAL TENSIONS Up until several years ago the rise of geopolitical pressures were actually viewed by the traders as bearish for the price of gold. The logic behind this was that anything that slows global economic growth would likely limit inflation pressures, and a weaker inflation outlook would likely lower the price of gold. However, that line of thinking doesn’t hold water today, as that relationship has reversed now. In fact, the relationship between the rise of geopolitical tensions and the price of gold is now positively correlated. The best examples of this is the bullish manner of how gold reacts any time there is negative news concerning the U.S.-China situation and how the price of gold declines on indications that there may be a breakthrough in trade negotiations.
Geopolitical problems such as the U.S.-China trade situation and the heightened tensions in the Middle East, in light of the drone attacks on the Saudi Arabian oil production facilities, are now actually viewed as a reason to move funds into the safe haven of gold. So, what once was a reason to sell gold is now a reason to buy it.
Chart 2: Gold Futures - Weekly
Source: QTS
FUNDAMENTALS ARE BULLISH It appears now that gold is not the “barbaric metal,” or “pet rock” that some have described it to be. The dominant fundamentals are bullish, including downward pressure on global interest rates, ramped-up purchases of gold by central banks, gold’s newly found luster as a safe haven vehicle and now possibly the most bullish of all is gold’s never before status as a “yield producing asset.” The most important fundamentals we have today are the tailwinds that are likely capable of sustaining a long term bull market in gold futures.
Alan Bush
E:
alan.bush@admis.com T: 001 312 242 7911
7 | ADMISI - The Ghost In The Machine | September/October 2019
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