The gold price has managed to stay above the psychological $1,300 over the last few trading session and some say the precious metal may be setting itself up for another bull run.
Higher inflation, and especially in the US are expected to fee into the fears of investors as the year unfolds and may see them seeking out safe haven investments such as gold. Although higher inflation usually translates into higher interest rates is expected this time around the US Federal Reserve won’t be so aggressive in tightening monetary policy which they learnt through past mistakes.
“In metals, when people think of inflation, gold immediately comes to mind,” analysts said. “The current rising inflation environment brings with it our expectations of a more rapid rate hike cycle, though in future years we still do project one of the slowest tightening cycles in U.S. economic history while monetary policy ex-U.S. looks set to remain loose.” Noted analysts from BMO
However, they noted there are a few risks associated with the recovery in the gold price which includes the new investor classes such as Bitcoin and Litecoin.
“We expect a return of retail buyers where the need to increase allocation to gold as a hedge is rising once more. There are risks to this thesis including a decline in macros asset allocation on the back of a rising U.S. dollar, and potential alternative investment areas for the emerging market consumer, of which cryptocurrency is the latest,” they added.
Lower than expected GDP numbers from the US yesterday also lent some support to the gold price which makes the release of tomorrow’s non-farm payrolls figure and unemployment rate vitally important to see whether there is more evidence of an overall slowdown in the US economy.