Gold prices are retesting a key resistance at $1,800 as renewed geopolitical uncertainty fuels safe-haven demand for the precious metal. Professional analysts interpret the latest developments and share their forecasts.
Gold prices get support from rising geopolitical risks
Nancy Pelosi, Speaker of the US House of Representatives, raised China’s anger by visiting Taiwan. Analysts point out that geopolitical risks have increased after this event. In response to Pelosi’s visit, China launched the largest ever military exercises in the Taiwan Strait. Military exercises include real fire drills just 12 miles from the island.
With increasing risks, gold prices rose to $ 1,803. While gold has risen, new tensions haven’t weighed on equity markets with the S&P 500 opening relatively flat on the day. Rising tensions with China are only the last link of growing geopolitical anxiety. Many investors wonder why gold has been on a downward trend for the past two months despite a world full of risk and uncertainty.
cryptocoin.com As you followed in March, Russia’s invasion of Ukraine prompted investors to look for safe-haven assets. Therefore, gold prices rose above $2,000 for a short time. While the offensive continues, interest in gold as a safe haven has waned in recent months as the threat of a larger-scale war wanes. However, although not obvious, some analysts say there is still a solid safe-haven offer in the gold market.
How important is the geopolitical risk premium for gold?
Chantelle Schieven, head of research at Murenbeeld & Co., has been tracking gold’s risk premium since the late 1970s. He explored how gold prices responded to events such as the Falkland Island War, the First Gulf War, the September 11 terrorist attacks, Russia’s annexation of the Crimea region in eastern Ukraine, and the North Korean nuclear missile threat. Schieven says their research shows that geopolitical uncertainty can increase gold prices by an average of 13%.
However, he adds that the problem with geopolitical safe-haven demand is not sustainable. Once the threat has subsided, it’s possible for gold to quickly give up on its gains. However, he also notes that this period of geopolitical uncertainty is different because it is more sustainable. He states that Russia’s invasion of Ukraine has exacerbated rising inflation. He also explains that he has plunged the global economy into recession, with food and energy prices rising at an extraordinary rate.
“Gold prices will continue to rise!”
Schriever notes that this uncertainty has helped gold withstand rising interest rates and the unprecedented strength of the dollar. The US dollar hit a 20-year high and reached parity with the euro. The gold market gained support at $1,700. In addition, Schieven says the Federal Reserve has increased interest rates by 2.25% since March. In this context, Schieven makes the following assessment:
Looking at the US dollar and interest rates, gold prices should be much lower. It may not seem like it, but the risk premium has played an important role in supporting gold prices this year. Gold prices will continue to rise due to safe haven demand. We’re not convinced that March’s gold is the only increase in the geopolitical risk premium.
“Gold prices should be only $1,300”
Robert Minter, Director of Investment Strategy at the ETF at Abrdn, says safe-haven demand plays an important role in the gold market. Minter notes that since the Fed began raising interest rates aggressively, real rates have slipped into positive territory, which is high by 27 basis points. The strategist also makes the following statement:
Gold prices should only be $1,300. The $400 price premium says something other than real interest rates is affecting gold. In our view, this is an environment of geopolitical risk, deglobalization, technical stagflation.
“Geopolitical tensions will continue to support gold”
Minter does not expect geopolitical tensions to ease any time soon. Therefore, it states that it will continue to support gold prices throughout the year. He explains his views on the subject as follows:
Geopolitical tensions such as inflation seem to have reached a new high in the medium term, even if both are moderate. Very clearly, Putin and Xi have decided to challenge the world order. This has implications for global supply chains and inflation.
George Milling-Stanley says geopolitical uncertainty adds to the growing economic risks in the market. Therefore, he predicts that gold prices will rise above $1,800 and move towards $2,000.
“It has been a strange time for precious metals”
CNBC’s Jim Cramer updated his gold outlook, saying it’s the perfect time to get into gold trading. Cramer states that gold has not yielded much expected returns this year after its record highs in March. That’s why he shares the frustration of many golden beetles. Cramer says:
It’s been a strange time for precious metals. I’m a big fan of holding gold as an insurance policy against inflation or economic chaos. Historically, this has been very effective. But in recent years it has exploded in our faces.
At first, Cramer accuses competition in the crypto space of holding gold back. But that didn’t change when the crypto markets crashed this year. He tries to explain this situation as follows:
Last year, we had high inflation and gold didn’t do much for you. I thought the culprit was crypto. People who normally hide their money in gold were buying cryptocurrencies instead. This year, the entire crypto ecosystem has collapsed. So gold doesn’t have much competition. And we got insanely high inflation data. In fact, the worst in decades. Yet gold prices are basically flat for the year.
Jim Cramer: Now is the time to buy gold!
But Jim Cramer says that now would be the perfect time to enter the trade, as the public has given up on gold. He cites chart analysis by legendary market technician Larry Williams, who is famous for looking for tops and bottoms in trading patterns. Cramer adds that the price of oil is another great indicator of future gold price movements. He points out that the precious metal tends to respond much more to changes in oil prices than other inflation indicators. He details his view as follows:
The oil price pushed forward eight weeks has been too strong to predict the price of gold in the past. Williams says now is the time to buy gold, given the price of oil over the next eight weeks. His guess says he should be ready to pack here. I know it’s hard to bet on gold this year. But right now, the charts may finally be on your side. The charts show that gold may be ready to recover.
