Tag: Angst

The recent drop in gold prices to their lowest level of the year may have come as a surprise for some, especially given that geopolitical risks have intensified since the start of the year, but the yellow metal still lacks a good reason to break free from the tight trading range it’s held for months. After news broke Thursday that President Donald Trump cancelled a planned nuclear summit with North Korea, gold prices GCM8, -0.25% settled at a one-and-a-half-week high of $1,304.40 an ounce. “The fear was whether President Trump would increase the likelihood of making them worse.” Earlier this year, that helped to raise gold’s appeal to investors, who have historically flocked to the metal in uncertain times as a hedge against potential financial losses. But investors have grown accustomed to a world of “violence, political turmoil, and uncertainty,” says Brian Larose, senior technical analyst at ICAP Technical Analysis, a unit of the world’s largest interdealer broker. He points out that while there were concerns that Trump would start a war by pulling out of the Iran deal or moving the U.S. embassy to Jerusalem, it appears that “other than increased tension, the world is safe from war for the moment,” adds Moy, “This progress could still be reversed, like the North Korean summit, but so far the president has beaten some expectations.” As geopolitical concerns appear to ease, investors have turned their attention to riskier assets, such as stocks, and gold prices fell to the lowest levels of the year. They’ve “taken a big bite out of gold’s appeal,” says Larose. “Much of the protection from fiat currency has moved to the cryptosphere.” Of course, the dollar’s rise has played a large part in the retreat for metal, which is traded in greenbacks. U.S. Treasury yields have rallied, with the 10-year yield TMUBMUSD10Y, -1.66% up roughly 52 basis points (0.52 of a percentage point) this year so far. The dollar index touched its highest level of the year on Friday and on May 18, the 10-year yield hit a nearly seven-year high. “While there is strong correlation, it is not perfect, and when gold has a mind of its own, that can be an opportunity for investors.” Expectations for further interest-rate increases by the Federal Reserve have helped to strengthen the dollar, as well as contribute to gold’s decline.