Gold: Geopolitical tensions provide support - NAB

The research team at NAB explains that gold has been one of the better performing commodities during 2017, with the year to date (May 18) spot return of 8.7%. 

Key Quotes

“Following the election of the Trump administration, and expectations that it would be able to achieve its infrastructure agenda, the gold price fell to a recent low of USD1125/oz around December 2016. This period also witnessed a rise in equity markets and a stronger US Dollar.”

“However, gold regained investor confidence during 2017, as doubts about the Trump’s administration’s ability to see through their policy agenda and political difficulties have emerged. Moreover, there has also been a number of geopolitical events such as European elections – the results in France and Netherlands have somewhat assuaged financial markets – and the flashpoint in the Korean peninsula.”

“These trends have also been mirrored by the net long open positions in gold derivative markets. After having reached a recent low at the end of 2016, market participants have increased their net long position in gold derivatives in response to geopolitical uncertainties, although this has abated somewhat of late, due to higher gold prices.”

“The spot price of gold jumped nearly 2% on the 17th of May, the most significant daily increase since the Brexit vote on May 2016. Political developments will be closely watched by the market, and could be a potential driver of additional uplift in gold prices going forward.”

“Comments by St. Louis Fed President, James Bullard, that inflation remains subdued, and the Fed’s interest rate expectations might be too aggressive, have also been supportive of gold.”

“We expect gold to be largely range-bound around the USD1250/oz  level. More specifically, we are expecting the gold price around USD1254/oz, by the end of 2017, rising to USD1300 by the end of 2018.”