Gold gains as global economy slows down

Gold is experiencing an uptick in the wake of worry about financial instability around the world.

Gold bars after gold price rising Source: Bloomberg

Gold is on the rise again. The commodity’s price is rising up above $1,300 for its second straight gain of the week.

Why is the price of gold rising?

Gold has jumped to its current price of $1,308.70. Bullion usually goes up as the economy is slowing down. The current volatility on Wall Street and the lack of resolution in the US-China trade talks could make traders see gold as a safe investment. Edward Moya, market analyst at Oanda, wrote in a research note to investors that gold is on the rise because of financial concerns around the world.

‘Gold took some time but it finally broke away from $1,300 as a dovish[US Federal Reserve]and global growth concerns continue to be the dominant narrative on Wall Street,’ wrote Moya.

Gold futures are increasing because of concern that the US Federal Reserve may lower rates, which could possibly weaken the dollar and cause investors to look at the commodity as an alternative option. Francis Panizzutti, from metal trader MKS, noted that the global stock market is helping gold’s price rise.

‘A slowdown in Fed interest (rate) hikes, possibly a weaker or at least not strengthening US dollar, further US stock corrections and ongoing geopolitical instability are building the perfect storm (in favour of gold),’ said Panizzutti.

Financial analysts like, Suki Cooper, precious metals analyst at Standard Chartered Bank, also thinks that the Fed’s decision on interest rates will affect gold’s value.

‘The key factor to watch for gold is development surrounding the U.S. Federal Reserve (monetary policy), but we expect it to be on hold through the first half of the year,’ said Cooper.

What’s next for gold?

While some investors see gold as a temporary safety net during a volatile market, Cooper sees gold’s price increasing even if the market stabilises.

‘On the trade front, if we see the markets moving towards a compromise, it could be a positive development for the gold market,’ said Cooper.


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