Gold edged higher in Monday trading, rising to a three-month high of $1,264.90 per ounce, and some strategists see the yellow metal moving up in the near term as investors flock to the safe-haven asset in the face of global political uncertainty.
Gold is on pace to log its second straight month in the green; it hasn’t logged such a streak since summer of 2016, in the midst of Britain’s vote to leave the European Union and the U.S. presidential campaigns. Interestingly enough, stocks and gold are rising simultaneously. Gold is up nearly 10 percent year to date as the S&P 500 is up nearly 6 percent in the same time. This time last year, gold was up 15 percent on the year while the market was in the red nearly 5 percent. The commodity tends to move opposite the market as investors see gold as a safe investment in times of a market downturn.
“We really see this as heightened geopolitical risk,” Erin Gibbs, equity chief investment officer at S&P Global, said Friday on CNBC’s “Trading Nation,” referring to the recent gold rally.
Gibbs cited the upcoming French election in late April and concerns of a “Frexit” — the potential of a French “exit” from the European Union — and the German election in the fall. The U.S. dollar weakening slightly last week also helped push gold higher, Gibbs noted.
“But this is really something we see as temporary — not for the long term,” Gibbs said, noting she believes perceived political risk will cool off over the next couple of months, and she wouldn’t recommend investors getting into gold mining stocks, like the Gold Miners exchange-traded fund (GDX), even though it’s up 16 percent year to date, roughly three times that of the S&P 500’s gains.
Bank of America Merrill Lynch forecasts gold rising to $1,400 by the fourth quarter of 2017, according to a report published Monday by foreign exchange strategist David Woo. Negatively yielding bonds have made gold appear more attractive in a sort of portfolio rotation, Woo wrote. As interest rates and the price of gold tend to move inversely, more flows into negatively yielding government bonds would cause gold to rise.
From a technical perspective, Miller Tabak equity strategist Matt Maley observed in a recent note that gold breaking above a key technical level of $1,250 was a positive signal and could lead to a “relatively quick” move to the $1,300 mark, though he added that gold may have a “breather” in the near future “to digest its strong recent gains.”