It’s no mystery. Gold, which has lost nearly 14 percent of its value since mid-April, has been declining sharply as U.S interest rise and the U.S. dollar strengthens.
Also, the Federal Reserve has signaled two more interest rate hikes this year and possibly three next year. Thus, higher rates will push up bond yields, making gold a less attractive investment because it does not bear interest … and it costs to store gold.
And since gold is dollar denominated, it makes it more expensive for holders of declining currencies.
For example, India, a prime buyer of gold, saw its imports fall 25 percent in the second quarter as the value of its rupee had declined 9 percent against the dollar.
And in China, traditionally another strong gold market, with its yuan down more than 8 percent against the dollar since April, gold bullion sales plunged 15.65 percent year-on-year and gold coin purchases slumped 18 percent.
When gold hit $1,285 per ounce, we had forecast the downside risk would be around $1,200. As we go to press, it has fallen to $1,182, an 18-month low. However, we forecast gold is at the bottom range, and for investors and speculators, the downside risk will prove marginal.
And, while we are trends analysts and do not provide financial advice, we forecast gold will spike as powerful geo-political forces emerge that will offset the effects of higher interest rates and a strong dollar that pushed gold lower.
Specifically, escalating tensions in the Middle East, particularly in Iran, can be that trigger point.
Recently, President Trump restarted a series of crippling sanctions on Iran, including actions that inhibit international gold trading with Iran.
And, as the Iranian rial, which has lost 50 percent of its value against the dollar, dives to record lows, Iranians have been buying and hoarding gold as a safe haven asset against a collapsing currency and soaring cost of living made significantly worse by the U.S. sanctions. TJ
President Trump declared war on Iran…economic war. Thus, Iran is the epicenter of Middle East tensions. An escalation can lead to spiking oil prices, which will hit global economies and markets hard and sharply boost gold prices.
Moreover, should the current Emerging Markets currency crash escalate, the U.S. Federal Reserve may lessen its aggressive interest rate policy, which in turn will weaken the dollar and be more bullish for gold.