Precious metals are seeing a revival in demand among investors as gold prices continue to rally amid global economic uncertainties and geopolitical tensions. Gold prices have gained 6.5% year-to-date, having jumped 5% in January alone.
Analysts say the US rate hike in December and lack of clarity on US economic policies are key factors driving gold prices. “Concerns over the outcome of the French elections and uncertainty over Donald Trump’s foreign policy has kept gold and silver underpinned in recent days. Better US economic data is also helping the dollar uptrend to resume,” Motilal Oswal said in a note.
The brokerage firm said any escalation in geopolitical tensions could provide an important turning point for gold, which could extend its gains.
Marine Le Pen, the leading presidential candidate in the French elections coming up in April-May, has proposed exiting the euro zone and re-denominating France’s national debt in francs, which analysts see as a huge potential risk to global market stability. Her victory could push ‘safe haven’ demand significantly higher and aid buying of gold and silver.
In December, the last time the US Federal Reserve raised key interest rates, it triggered a gold buying spree among investors. Gold prices gained around 8% after US Fed chair Janet Yellen raised key interest rates by 25 basis points to between 0.50% and 0.75%. The rate hike was the first in a year (the last was in December 2015) and only the second since the 2007-2009 financial crisis.
Considered a ‘safe haven’ asset, the metal is sensitive to Fed rate hikes as it increases the opportunity cost of holding non-yielding bullion, while boosting the dollar.
Source: Live Mint
