Global Precious Metals Comment Gold’s next bull-run – are we there yet?

Has gold entered its next bull-run?

We have held a friendly, yet conservative view on gold for some time. A few years and

several false starts later, we think the macro backdrop has now started moving more

convincingly in gold’s favour. We raise our base forecasts across the board to reflect

our latest views and lift our short-term target (3-months) to $1430 from $1380

previously. That said, it is only the early stages and it unlikely to be a straight path

higher. In this note we discuss the signposts that we have been watching out for, how

these are changing, and what the risks are.

Why now?

We think the sustained decline in rates is a key factor, particularly as the Fed shifts to a

more dovish stance. Uncertainty around growth and trade risks suggests more strategic

positions are likely to be built. Broader positioning remains relatively lean, so there is

room for investor told exposure to grow. The opportunity cost of holding a gold

position is declining while the case for diversification and having a safe haven is

increasing.

The dollar presents risks…

It matters how the dollar will react to Fed policy relative to the rest of the world and

lingering global uncertainty around growth and trade risks. The dollar’s decline

following the dovish shift in the Fed’s tone was a key factor in gold’s rally, helping it

push through levels where it previously met stiff resistance. When considering gold’s

path from here, we cannot ignore the dollar.

…but falling real rates and lingering uncertainty should underpin gold.

Gold has the potential to withstand and perform well even if the dollar holds up; we

think declining real rates will underpin gold this time around. Our model shows that the

influence of the dollar has declined vs last year and has been overtaken by that of rates.

Lingering uncertainty about growth and the fluid nature of trade negotiations also

suggest that gold has the potential to be resilient, especially given broader investor

positioning remains lean. The potential for further escalation in trade tariffs holds

upside risks for gold given the likely drag on growth and the expected policy response

among major central banks. Our gold fair value model shows that gold can trade a

premium for some time, likely because of its safe haven properties and fundamental

demand drivers keeping the market well supported.

FX

Global

Joni Teves

Strategist

[email protected]

+44-20-7568 3635

Roque Montero

Strategist

[email protected]

+1-203-719 2112

Global Precious Metals Comment 24 June 2019