Gold Closes Above $1,400, Posting Best Week in Three Years

(Bloomberg) -- Gold is back in favor.

Prices have surged this month, passing $1,400 an ounce for the first time since 2013. It’s become easy to find reasons to be bullish. Everything from dovish central banks, technical indicators, negative-yielding bonds and fears of a military strike between the U.S. and Iran are all working in favor of higher bullion prices.

“There has been a dramatic change in sentiment,” said Adrian Day, president of Annapolis, Maryland-based Adrian Day Asset Management.

Citigroup Inc. said Thursday that the enthusiasm is justified, with $1,500 to $1,600 an ounce possible in the next 12 months under a bullish-case scenario that includes borrowing costs falling below zero. Strategists at Australia and New Zealand Banking Group Ltd. joined the club on Friday, saying gold will remain a “highly relevant” portfolio diversifier.

In the longer term, one risk to the market is if the Federal Reserve doesn’t follow through with U.S. interest rate cuts, said Wayne Gordon, a Singapore-based executive director for commodities and foreign exchange at UBS Group AG’s wealth management unit. UBS predicts two rate cuts this year, but the market is pricing in three, he said.

Gold for August delivery climbed 4.1% this week, posting the biggest gain for a most-active contract since April 2016. The metal’s ascent to $1,400 faced resistance after U.S. existing home sales topped estimates and as tensions with Iran dialed down some. By the end of trading Friday, the precious metal settled at $1,400.10 an ounce in New York.

“The dollar’s coming up a little bit on existing home-sales figures, and also you’re seeing some profit-taking going into the weekend right now with the fact that Trump is open to dialogue with the Iranians now versus an attack,” Bob Haberkorn, senior market strategist at RJO Futures in Chicago, said by phone. “When the market goes up as fast as gold did over the last few days, you can expect pullbacks, but the trend will still remain up.”

Why gold has turned bullish

• The Fed opened the door to reducing interest rates this week, leading to a slump in the dollar. Central banks in Europe and Australia also shifted the tone to easy policy ahead.
• More bond yields are turning negative, meaning there’s greater appeal in gold over other assets.
• Geopolitical tensions are heating up. The U.S. called off military strikes against Iran on Thursday night that were approved by President Donald Trump.
• Money is pouring into the market. Exchange-traded funds backed by gold have seen inflows jump since late May.
• Central banks including Russia and China have been on a gold buying spree.

To contact the reporters on this story: Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net;Elena Mazneva in London at emazneva@bloomberg.net;Justina Vasquez in New York at jvasquez57@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net;Lynn Thomasson at lthomasson@bloomberg.net

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