In the past six months the Sterling price of gold has gained more than 21%, a remarkable rally. Yet in the past week it has lost more than 4%, although a little less in US Dollar terms, almost 3%. For the novice investor this rollercoaster might be alarming but for the long-term saver in gold all the comforting signs are still there – and even the bigger banks, usually somewhat hostile to gold, are starting to take note. Citigroup put out a note this week citing macroeconomic reasons why it believes that the US Dollar gold price could surpass the previous record price of $1,900/oz and reach $2,000/oz within the next two years.
Despite the short-term outlook for gold remaining weak, any move lower will be limited. Last week, the yellow metal had its biggest daily loss in more than three years after an optimistic tone from Jerome Powell, chairman of the US Federal Reserve Jerome Powell, who suggested that the US economy was performing well. Regardless of this the core market themes and worries are still intact and therefore allocating to gold during these next two weeks could offer a good entry point. The near-term weakness might have come at the right time. Trade tensions, weakening macroeconomic conditions and increased stock market volatility will continue to support the gold price. Gold is getting a tailwind from plunging bond yields, currency wars and elevated debt levels across the world. We would expect to see a substantial period of US dollar weakening, similar to that seen in the 2008 the financial crisis. Whichever way you look the relationship between the US dollar and gold is changing (and at times confused), which could lead to a sustained upward move in Gold. Currently, we are in a period where we will see some short-term consolidation but this is healthy and required for gold to make its next leg higher.