ING's team believes gold stands to gain more from uncertainties than it has in recent months.
According to a recent report by ING, gold will eventually break past its current levels and make a run above $1,400 an ounce. Kitco reported that the metal has enjoyed numerous positive geopolitical and macroeconomic developments, which included the U.S.-North Korea conflict, trade tensions between the U.S. and various countries and several flare-ups within the eurozone.
ING's team believes that the metal stands to gain much more from these uncertainties than it has in recent months. Besides current tailwinds, ING's commodities strategist Oliver Nugent said that the metal will be assisted by several new catalysts.
One of the primary drivers of the breakout, said Nugent, could be a willingness by the Federal Reserve to allow inflation to run past the targeted rate of 2%. The article writes that inflation only recently moved towards the long-coveted 2% after trending downwards for a prolonged period of time. Some analysts warned that the sudden reversal could mean an explosion of the inflation rate past what the Fed could manage.
These concerns could prove valid as inflation continues to run upwards, having most recently clocked in at 2.5%. Should the Fed allow inflation to run its course, whether by choice or necessity, gold would find itself among the primary beneficiaries reports Kitco.
A shift in inflation expectations would also help move gold towards ING's forecasted price. While expectations have been subdued in recent months, Kitco writes the steady uptrend in inflation could eventually affect sentiment and tell market participants that it's time to brace for significantly higher prices.
Although there is little question that lower bond yields play in gold's favor, Nugent thinks that the drop in Treasuries was another booster overlooked by the gold market. Nonetheless, the ongoing loss in yields should prove to be a major factor in gold's rise predicts Kitco.
"Since its peak two weeks ago (May 16th) US treasury yields have fallen hard, boosting gold's appeal as a non-yielding asset and supporting a brief break above $1300/oz. The ten year has dropped from a high above 3.1% to a low of 2.78%, before recovering slightly but still remains below the psychological 3%," said Nugent.
The analyst believes that geopolitical tensions could come to a head as the G7 summit draws to a close, with many of the attending countries being at odds with one another over trade issues. Strong physical fundamentals will also support gold, said Nugent, with recent Swiss export statistics featuring a prominent upgrade. The country recorded a 2% increase in bullion exports for the first four months of 2018, an increase driven largely by Chinese demand.
Ultimately, ING believes gold's long-term trajectory is set in stone, as the bank expects the metal to average $1,400 an ounce by the second quarter of 2019.
