Gold profiting from uncertainties

The price of gold has risen by around 9% since its low of 2018. Besides the rise in volatility on global stock markets, this increase is attributable to the current economic uncertainties. With the trade conflict between the USA and China still unresolved, investors are more greatly perceiving the risks to global economic development. Compounding this uncertainty are the political problems which are proving lengthy and complicated to resolve: besides the US budget blockade, the growing probability of a disorderly Brexit must also be mentioned in this regard. This general sense of uncertainty is thus being nurtured by greater financial market volatility, the current risks to global economic development and political quarrelling. This combination has significantly boosted investors' interest in gold. ETF investors alone have increased their stocks by 160 tonnes since the beginning of October 2018 - an increase of 7%.

In addition to the greater need for investors to hedge exposures, gold has profited from the decline in US interest rates since autumn 2018. The latest statements from the Federal Reserve also suggest that the US central bank is in no particular hurry to raise interest rates further. For gold as a non-interest-bearing investment, interest rates represent the opportunity costs, or more precisely real interest rates adjusted for inflation. Since these are also in decline, it seems worthwhile for gold investors - against the backdrop of the many risks - to take on hedges in this precious metal.

Our adjusted US interest rate forecast (no interest rate hikes in 2019) also rules out a key negative factor for gold. We have therefore raised our twelve-month gold forecast from USD 1,200 to USD 1,275. According to our estimate, the gold price could even briefly "overshoot" in a positive sense the 1,300 US dollar mark. As we expect the sources of conflict to be at least gradually curbed, the price of gold is likely to stabilise at a slightly lower level.

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