Analysts at Scotiabank said that they see further potential for the yellow metal as the bank sees a wave of risk-off sentiment sweep through financial markets and inflation pressures rise, according to its November Metals Matters precious metals report.
“Economic data has generally been showing weakness, including some U.S. data, and economic bellwethers such as the base metals have remained under pressure as the U.S. trade disputes have dragged on,” the analysts said. “Gold has turned more favorable as other markets have started to become more risk-averse. As such, there does seem to be room for more safe-haven demand for gold as money rotates out of equity and bond markets.”
The comments come as gold prices continue to hold above a critical support level at $1,220 an ounce; December gold futures last traded at $1,223.70 an ounce, relatively unchanged on the day. Meanwhile, equity markets struggle to find momentum with the S&P 500 last trading at 2,704 points, down nearly 1% on the day.
The analysts noted that along with economic uncertainty, geopolitical instability surrounding global trade issues will continue to support inflationary pressures, which could help gold fight against ongoing strength in the U.S. dollar.
“Gold prices and the dollar have generally both been strong in October, so further dollar strength may not be too strong a headwind for gold from these still generally low price levels,” the analysts said. “We said in the October Metal Matters report, we may not be that far from a turning point in gold prices – this may well now have happened.”
The analysts said that new momentum in the gold market could also breathe some life into silver, which has been lackluster through most of the year. Data on Kitco.com shows the gold-silver ratio holding near a 25-year high, last trading at 84.82.
The analysts noted that silver has been suffering because of weak demand for industrial metals due to global economic growth concerns. December silver futures last traded at $14.385 an ounce, nearly flat on the day.
“Should gold prices extend gains and investor interest return, then silver would likely outperform gold’s rebound in percentage terms as it has a history of being more volatile than gold,” the analysts said.
The SPDR Gold Shares (GLD) was trading at $115.78 per share on Monday afternoon, up $0.16 (+0.14%). Year-to-date, GLD has declined -6.36%, versus a 1.05% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Kitco.