Gold Bulls See a Comeback For Late 2019 After A Choppy Year

Gold is considered safe-haven asset which does well in times of political uncertainty, but U.S. Federal Reserve policy and a rallying dollar has put a strain on gold prices this year.

Last year in 2017, the US dollar fell 10% against a basket of major currencies, while gold price rose 12%. 

The commodity is sensitive to higher interest rates because high rates tend to boost the dollar, which makes gold more expensive for those who purchase it in other currencies.

U.S. tax cuts and deregulation has caused a pick-up in economic growth, while higher U.S. bond yields and less attractive non-yielding gold assets, have made investors to flock to U.S. Treasuries as a safe-haven.

“Gold’s 12.7% move lower since mid-April and through the first week of October has been largely lock-step with the U.S. dollar’s strength given that the dollar, not gold, was the main recipient of safe haven demand amid escalating trade tensions and risk market weakness,” said Head of Metals Research & Strategy at J.P. Morgan, Natasha Kaneva.

The surge in U.S. Treasury yields in October, which triggered an equity sell-off that same month, is not expected to “buck the trend of rising yields and a stronger dollar” according to the report. 

“We view the recent equity sell-off as largely technical in nature, following the same selling template as February, and, similar to earlier this year, believe equities should recover from the move lower.” Kaneva said

J.P. Morgan Research has reviewed its outlook for gold in the next year as the U.S. Fed continues to raise interest rates.

“As long as the inverse equities-bonds correlation holds, the gold price will continue to be dictated by the direction of real yields and the U.S. dollar” 

 “We still keep a bullish bias in place for the second half of 2019, as we believe the development of an inverted yield curve in the U.S. will likely attract increased interest in gold among investors,” Kaneva said.