Here Are the Three Things That Will Drive Gold Higher
The comments above & below is an edited and abridged synopsis of an article by Annie Pei
Gold has surged more than 12% this year, and Exante Data founder Jens Nordvig says there are three main macroeconomic trends behind the rally.
“I would say it’s the low-yield environment, the trend of the dollar and strong growth in emerging markets [that are driving gold],” he said on CNBC’s “Futures Now.”
“Those three things together are some of the things that have underpinned the gold rally, and they’re still here.”
Low bond yields generally lessen the opportunity cost of holding gold, as gold yields nothing and therefore investors are less tempted to pour into bonds than they are into the yellow metal. With US Treasury yields near June lows, the drop in bond yields has partly accounted for gold’s recently rally that began in early July.
Gold’s advance has also been due to the declining dollar. The yellow metal and greenback have an inverse relationship, and while gold has rallied, the dollar has dropped about 9% from the start of the year. Nordvig believes the dollar retracement this year might continue. So while it’s “just uncertain right now to take a long dollar position,” gold may be where investors want to look if the greenback continues to fall.
Aside from those three economic factors, Nordvig says that tensions in Washington could mean another rally for gold.
“There’s the government shutdown risk and then there’s the debt ceiling risk,” he said. “There’s been an elevated risk since Trump started to talk about it in more casual terms at his speech earlier this week.”
“That’s definitely something that’s holding the market back, and it’s something that could potentially give a boost to gold while dragging the dollar down,” Nordvig added.