Santa Brought Gold Holders a Present as the Commodity Rallied Over Christmas
The gold price increased around US$ 25 this week breaking through US$ 1.500 per ounce over the Christmas holiday, trading at around US$ 1.510. The highest level since September this year. 2019 has been a remarkable year for gold with the best returns since 2010, soaring around 15% year-to-date. While there have been many reasons that have contributed to the rise in the price of gold, it looks like there is still a lot of momentum left going forward into 2020.
Chart 1: Current Trading Range
US-China Trade Deal
The trade war tensions between the USA and China have been the primary driver of the gold price this year. Should it ever come to an amicable solution, this would most likely send the gold price to tumble. Since the announcement of the alleged phase one deal, the price of gold stayed fairly flat and subdued. Most likely attributable to general market scepticism that a trade deal may not actually be signed. There are continued growing tensions between both countries regarding the Hong Kong protests and China’s treatment of the Uighur Muslims. In 2020 the US presidential elections will also take place. A potential reason for China to sit it out in aspiration of President Trump not being re-elected.
Gold shines in an uncertain environment and will thrive if the trade deal officially falls through.
The Weakening US Economy
The US economy is standing on shaky grounds. They are facing a weakening manufacturing sector, consumer spending being driven by debt and the Federal Reserve continuously making credit cheaper.
Eventually this will have a detrimental effect on the economy with a hard felt recession. This will result in a tailwind for gold.
Key Islamic Nations Looking for a Golden Alternative to the Dollar
Iran, Malaysia, Turkey and Qatar are exploring trading in gold as well as through a barter system amongst each other as a hedge against any future economic sanctions. This is provoked through the hefty sanctions by the US on Iran. Fearing future penalties, the Malaysian PM said,
“I have suggested that we re-visit the idea of trading using the gold dinar and barter trade among us. We are seriously looking into this and we hope that we will be able to find a mechanism to put it into effect.”
The Dollar has been world’s reserve currency since 1944 with an increasing number of countries, these days, looking for alternatives.
Gold has however been the de factor reserve currency for thousands of years. The more countries looking for an alternative to the dollar, will doubtlessly have a positive effect on the demand for gold.
The Hoarding Spree
Russia is leading the way in their increasing accumulation of gold over the last year. Not only through the continued bullion purchases of the Central Bank but mining has also increased by approximately 18%, year-on-year. Russian’s total gold reserve is up to US$ 548 billion.
It is visible that Russia is moving away from the dollar. They are not alone though. China is on a similar path as are many more countries. In fact, everyone from the super-rich to central banks seem to be on the gold-buying- and gold-hoarding-spree.
Considering all the fundamental and technical reasons, the price of gold is set to go through the roof in the coming years.
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