Comm: Precious

(New York)

One of the biggest banks on Wall Street has just made a bold call on gold. Citi says that the precious metal is likely to shoot to $2,000 or more within the next 24 months. The bank argues that a dovish cutting cycle by the Fed will be a catalyst for price gains, which will be supported by a weakening economy and worries over the trade war. According to Citi, “We expect spot gold prices to trade stronger for longer . . . posting new cyclical highs at some point in the next year or two”. Standard Chartered, another big bank, also made the interesting comment that “It does seem that gold’s status within the portfolio has been reignited”.


FINSUM: The most interesting comment here is about gold’s role in a portfolio. For many years it seemed that investors had forgotten about gold’s role in diversification, but it finally seems to have made a comeback.

(New York)

A big bank has just come out very bullish on gold. BNP Paribas says gold is going to shoot to over $1,600 per ounce in the medium-term as the Fed embarks on four 25 bp interest rate cuts between now and June 2020. According to BNP Paribas, as headline yields fall with each cut “real rates will move and stay in negative territory, raising the appeal of holding gold”. The ongoing, and seemingly endless trade war, will also be bullish to gold.


FINSUM: This argument makes perfect sense to us, though it is highly contingent upon the Fed cutting and the trade war continuing. In our view, both of these are likely, so this appears like a good buy.

(New York)

Falling yields are having a very positive effect on gold. The metal is already enjoying its best first half in years, and the fundamentals for gold look solid. Potential weakness in equities and worries about growth are both stoking gold demand, while lower yields and a weaker Dollar are also supportive. Gold is now being used as a hedge against equities in a way that bonds have traditionally been employed. “The bond market is not acting as a reliable hedge against equity weakness in the way that everyone expected it to and it hasn’t operated that way since 2008. Gold is providing better protection against potential equity weakness right now than bonds are”, says the head of gold strategy at State Street Global Advisors.


FINSUM: Gold seems like it has a nice path to keep its performance going. That said, we are worried rate cuts might spark a more risk-on equity market, which would pull money out of the metal.

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