Since the beginning of the year, the price of gold in US dollars has increased by almost 20 percent, and silver by almost 12 percent. Only this month the price increase exceeded 6 percent. In times of increased economic and political uncertainty, capital is headed towards safe assets, i.e. precious metals.
The trade conflict between the US and China has recently escalated, and there have been further protests in Hong Kong that resulted in the protesters closing down the city's main airport. Moreover, there are considerations as to whether the Chinese authorities will take steps to calm the situation, which in turn would increase nervousness in the markets. The collapse of the currency exchange rate in Argentina and the stock market after the announcement of the results of the presidential primaries could also affect safe assets - including gold.
It is also worth noting that the Goldman Sachs bank, well known to investors, raised its forecasts for gold. The three-month forecast was raised to USD 1,575 per ounce, and the six-month forecast to USD 1,600. Forecasts have been revised mainly due to the trade dispute and the depreciation of the Chinese currency. An increase in risk aversion and a decrease in bond yields also play an important role, which, according to GS, is expected to have a positive impact on the price of gold.
Institutional investors have also recently increased their involvement in long positions on gold futures, according to CFTC data. Net long positions (difference between long and short positions) increased to the highest level since September 2016.
Gold contract and Non Commercial net long positions. Source: tradingster
The chart illustrates a strong trend because price increases are supported by the increasing involvement of market participants. Nevertheless, we are approaching historical overbought levels, which for some investors may be a signal to take appropriate steps.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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