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Gold Extends Rally to Six-Year High on Economic ‘Uncertainties’, Geopolitical Tensions

June 24, 2019 at 13:35 by Andrew Moran

Gold futures are extending their rally to kick off the fresh trading week, driven by a diverse array of economic “uncertainties” and geopolitical tensions in the Middle East and Asia. The yellow metal has been on a roll lately, reaching its best level in six years and analysts say that the best is yet to come, especially as central banks continue to roll out easing monetary policies.

October gold futures surged $10.10, or 0.85%, to $1,416.00 per ounce at 13:08 GMT on Monday. Last week, gold prices recorded a weekly increase of more than 4%, bringing their year-to-date gains to just under 10%.

Silver, the sister commodity to gold, is also performing modestly well in metal resurgence. July silver futures rose $0.015, or 0.1%, to $15.305 an ounce. The white metal posted a weekly gain of 3.25% last week, but it is still down 1.6% so far on the year.

Gold commenced its rally soon after the Federal Reserve completed its two-day Federal Open Market Committee (FOMC) policy meeting and highlighted “uncertainties” in the US economy. As a result, the central bank hinted at one or two cuts to interest rates this year, but the central bank did leave its optimistic gross domestic product (GDP) projections unchanged.

According to the CME Group FedWatch tool, the consensus is that the Fed will impose a 25-basis-point cut at the July FOMC meeting. Many experts do think, however, that the Fed will move ahead with more than one rate reduction.

The safe-haven asset has attracted investors amid geopolitical tensions in the Middle East and Asia. President Donald Trump confirmed that he would slap new sanctions on Iran, which comes only days after calling off airstrikes. He has employed a more positive tone in Tehran, believing that Iran and the US will eventually have a positive relationship. This is in stark contrast to previous hawkish language regarding the regime since taking office.

In addition to economic and political strife, gold could find even more support in bond yields turning negative, exchange-traded funds (ETFs) experiencing a spike in inflows, and central banks going on a gold buying spree. Moreover, the US dollar has been weakening in June, falling 1.5% — a sliding buck is good for dollar-denominated commodities because it makes it cheaper for foreign investors to purchase.

Because of this, Wall Street has increased its expectations for gold, forecasting that the precious metal could rise to as high as $1,600 within the next 12 months. The risk, however, is if the Fed decides against cutting interest rates.

In other metal markets, July copper futures were flat at $2.70 a pound. July platinum futures tacked on $1.70, or 0.21%, to $812.70 per ounce. July palladium futures added $7.70, or 0.51%, to $1,507.30 an ounce.

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