Although gold has risen by about 17 percent this year, it looks set to rally further amidst a low-yield environment and rate-cut expectations, some analysts say.
Gold's ascent may be losing steam recently but a low-yield environment, shaky geopolitics and rate-cut expectations in the U.S. could give legs to the bullion rally and push the yellow metal past $1,600 an ounce.
«The fundamentals point to firming gold. Some US$15 trillion worth of investment-grade paper is yielding negatively, and there is downside pressure on U.S. rates as investors aggressively seek yields. In contrast, gold is in contango and offers a positive yield,» wrote analysts at TD Securities in a recent report.
Next Leg Up
The brokerage added that a $1,600 level for gold could be on the cards once focus shifts «from headlines to fundamentals», especially when the macroeconomic narrative remains unchanged.
Axi Trader's Asia-Pacific market strategist Stephen Innes said he expects gold to climb to $1,600 next year and push still higher until the U.S. Fed starts to raise interest rates. «Ultimately, I see the 10-year US bonds trading at 1.25 percent then. Gold will struggle to make explosive gains if the U.S. 10-year bonds remain above 1.5 percent, so the metal needs a lot of help from a weaker US economy,» said Innes, who was quoted in «Business Times» (behind paywall).
A Haven Flow Story?
Not all analysts are convinced that the metal could reach the mark. OANDA's senior market analyst for the Asia-Pacific, Jeffrey Halley, said in a report this is not a gold story but a haven-flow story. It means that gold's next move up or down will not be defined by the metal's fundamentals, but by its appeal as a risk hedge. He added that the $1,600 level would be a challenge unless there is a severe geopolitical event or the world tips into a sudden, deep recession requiring emergency easing by central banks globally.
The latest report of the World Gold Council (WGC) said that holdings in global gold-backed exchange-traded funds (ETFs) hit an all-time high during September - a historic month- with inflows of nearly $4 billion.
