The spot price of gold has continued to storm upwards, hitting a 6-year high in US dollar terms and a new all-time high in our local Aussie dollars.
Spot prices overnight hit US$1,438 per ounce, which is the yellow metal’s highest price since 2013. In Australian dollar terms, gold hit its highest level ever with an ounce of gold last night costing $2,058.
Today, the gold price is pulling back from these highs, with prices at the time of writing hovering around US$1,405 and A$2,020, but there is no doubt that these new levels reached overnight are very significant.
Gold has now broken the psychologically important US$1,400/oz level and it is possible that we begin to see a snowball effect on the gold price now this level has been breached.
The catalyst for this move appears to be global tensions surrounding the United States (US) and Iran, as well as the renewed speculation over the direction of US interest rates set by the US Federal Reserve. Speculation has been mounting that the Fed plans on reversing the hawkish pattern that it has recently adopted and may even cut US interest rates later this year. Since interest rates set the ‘risk-free’ rate of return of US government bonds, if they are cut, it increases the appeal of gold as an asset, as gold has no yield as an investment.
Comments out from the Fed Chair Jerome Powell today seem to have been behind the gold price moving off the boil this morning. Powell failed to shed any new light on the direction of interest rates, so traders likely took some profits off the table and the gold price has fallen back from its highs, but still in consolidation territory.
ASX gold miners like Newcrest Mining Limited (ASX: NCM) and Saracen Mineral Holdings Limited (ASX: SAR) are hovering near all-time highs on the back of these recent developments and the S&P/ASX All Ords Gold (INDEXASX: XGD) is currently sitting on 7,034, its highest level since 2011.
There may still be momentum in the gold price going forward, depending on news about a potential cut in US interest rates. If US and Iranian tensions escalate any further, this will also likely add buying pressure, as gold is the perennial ‘safe-haven’ asset that investors flock to when global markets get jittery. This is definitely an area to keep an eye on over the next few weeks and months
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.