Fundamentals for Gold are strong

As we have noticed in the past months, it was mainly the dollar and Fed actions that were influencing gold prices. But last week geopolitical tensions were fuelling gold prices.

Dollar, Gold prices

Gold was on the move in the past week after a display of threat of the military force by the U.S. and North Korea pushed the safe-haven metal back onto investors’ radar.

President Trump said on Tuesday that threats by the Hermit Kingdom would be met by “fire and fury,” which was followed up a day later by a North Korea threat to bomb the U.S. territory of Guam.
The yellow metal climbed to $1,285/oz as tensions rose this week, the best level in about two months, driving year-to-date gains to around 11.5%.

Gold has always been considered as a safe haven asset in times of uncertainty. The current rally in gold prices is because of the rise in safe haven demand for gold.

President Donald Trump intensified up his orotundity toward North Korea and its leader on Thursday, warning Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory.

Gold prices rose early Wednesday amid rising tensions between the United States and North Korea after the North responded to warnings from U.S.
President Donald Trump with a threat to strike the U.S. territory of Guam.

Though prices rose on Wednesday and Thursday, by the end of the week, prices more or less stabilized.
Gold prices held steady after touching their highest in more than two months on Friday, as rising tensions between the United States and North Korea triggered safe-haven buying.

Geopolitical risks can boost demand for assets considered safe-haven investments, such as gold. Although more hostile magniloquence between the U.S. and North officials would temporarily boost gold prices, we see outright military action as unlikely and upward pressure on gold prices stemming from the confrontation as limited.

Meanwhile, a lower-than-expected rise in U.S. consumer prices in July suggesting benign inflation could persuade a cautious Federal Reserve to delay raising interest rates until December.

Gold is seen being stable over easing out of the geopolitical tensions. But still, a minor escalation over the tensions can once again trigger gold prices. Hence the situation currently is quite unpredictable.
On the other hand, The Fed expects “very weak” U.S. inflation to rebound thanks to a slide in the dollar and to a labor market that keeps getting hotter, one of the Fed’s most influential officials said in comments that reinforce its gradual policy-tightening plan

Gold edged down from two-month highs on Monday, 14th August, as the dollar inched up from last week’s lows and investors kept a close watch on any developments on tensions over the Korean peninsula.

Summing it up we can say that though the threats from the Koreans have lowered, the fundamentals for gold still seem to be strong.

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