Gold price action
The metal bottomed out at $1122 in December 2016 and clocked a high of $1295 in April. The subsequent sell-off to $1214 was short-lived as prices regained the bid tone and rose back to $1296 levels (June 6 high).
What’s behind the gold rally?
Low bond yields – The government bond yields across the globe have been steadily losing height across the advanced world. The 10-year US Treasury yield hit a seven month low of 2.13% on Tuesday.
Moreover, the flattening of the yield curve weighed over the US dollar over the past few months. The difference in yield between two and 10-year Treasury notes narrowed 2.9 basis points to 84.71 bps on Tuesday, its lowest level since October 3.
Geopolitical tensions – Gold has regained its safe haven appeal this year, said James Hughes, Chief Market Analyst at GKFX on our finance show this week. We cannot agree more. The uncertainty on account of Russia-US scandal, Comey testimony and tensions in the Middle East forced investors to pour money into the yellow metal.
Wires are also citing UK election uncertainty as one of the reasons for the strength in the metal. However, we beg to differ, because the British Pound has not really suffered any losses in the run up to UK elections. Corbyn may have gained the ground in the polls, still, there is consensus that PM May is likely to come out victorious in the June 8 elections. Panmure Gordon, Senior Market Commentator David Buik told Tip TV on Tuesday that he expects a ‘modest Tory majority’ in the elections. Chief Economist Simon French also echoed similar sentiments.
The whole point of discussing this is to warn investors that UK election uncertainty has played a very little role in boosting gold prices. Hence, May’s victory may not yield a big pullback in the metal. On the contrary, a hung parliament or Corbyn shock could increase demand for the yellow metal.
What do the charts say?
Monthly chart
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