Jun 24, 2019

Gold Prices Reach Six-Year High as Global Geo-Political Tensions Rise

Prices of gold in the global markets crossed the US$ 1,400 per ounce barrier for the first time in six years at the end of last week and have continued over this level in early trading on the Asian markets on Monday June 24, driven by rising global geo-political tensions and economic uncertainties in key markets.

The high of US$ 1,410.78 registered on June 21 took gold prices to a level last seen in September 2013 as part of a steady rise over the last few weeks.

Escalating tensions in the Middle-East, the ongoing US-China tariff war as well as the less positive than expected signals from the US economy have all contributed to this spike, with the final push over the US$ 1,400 level being provided by the spurt in US-Iran confrontation following the recent incident of an attack on two oil tankers in the Persian Gulf.

Also aiding the rise in prices, was the outcome of a crucial US Federal Reserve meeting held last week. While leaving key interest rates unchanged, a statement issued after the meeting indicated that rate cuts could be in the offing later this year due to what it described as the increase in “uncertainties”.

Indications are that both the US and Chinese economies are feeling the impact of the trade war. While the IMF recently highlighted this factor, along with slowing industrial production as key reasons for its cut in the growth projections for China, in the US, economic data related to imports and the labour market has also been below market expectations.

The tariff war between the two countries and its wider implication for both economies has and spurred the demand for gold among investors searching for a ‘safe haven’. Already in the first quarter of the year, central banks have turned into key buyers. Retail investors have followed too.

Attention is focused now on the possibility of a direct meeting between the US and Chinese Presidents at the G-20 Summit later this week, and whether there will be a positive resumption of trade negotiations between the two sides as a result. The outcome is likely to play a key role in determining the direction of gold prices in the short to medium term.