Rising geopolitical concerns will help gold gain more

Subject

Gold market dynamics.

Significance

The gold price rose above 1,570 dollars per troy ounce this week for the first time since April 2013. This follows a near-20% gain last year, the largest in a decade. Moreover, this came as the dollar largely flatlined last year, and the unusual extent to which the gold price outpaced the dollar led it to a record price in many local currencies. Interest rates fell worldwide in 2019 and long positions in gold, which benefit when it increases in value, tripled compared to the 2014-18 average.

Impacts

• Stoking interest in the market, the Reserve Bank of India is offering senior gold bonds yielding 2.5%, and discounts for online buyers.
• A headwind is US prosecutors' labelling JP Morgan’s precious metals desk a 'criminal enterprise', a term often linked to organised crime.
• The cryptocurrency market is seeing the issuance of gold-backed tokens surge; Tether Gold is 100% backed by bullion reserves.
• Gold is benefiting from the growth in wireless applications for 5G infrastructure, offsetting demand losses from other tech applications.
• The copper-gold price ratio will rise if US-China trade conflict eases before the US election, but US rate cuts could curb copper’s gain.