Gold, as an asset, is inherently volatile. Yet, the yellow metal has broadly held on to gains above the 1200 level broken over the course of this year. In the current environment, should investors buy gold?
The yellow metal is considered as a safe-haven asset, which market players can turn to during times of market or economic uncertainty. One of the most pertinent economic issues today is the possibility that the UK will exit the European Union. While the economic implications of such a decision on markets continues to be debated, the possibility of a Brexit is leading to significant worries within the business community. Moreover, the IMF also stated that the potential event is resulting to severe damage to UK and the world economy. Analysts said that the yellow metal has the potential to surge if Britain will vote to exit the European Union.
In addition, the market sentiment for the greenback has significantly changed since 2015. The GDP growth of the United States in the first quarter have just grown by 0.5 percent since the previous year, and this has led markets to become stalled in the speculation that the Fed hiked interest rates too early. Furthermore, with the prices of oil increasing and possibly breaking the $50 mark in the next months, the greenback has been on a downward trend. China and India had started to greatly boost gold stockpiles in the face of a weakening USD and we anticipate that this will resume in the present market environment. Overall, we are bullish on the gold market given the existing macroeconomic conditions.
It is important to note that there are several risk factors which could mean that gold has a strong chance of rallying in the next months. Despite this, market players should still trade with caution as the yellow metal could still experience drastic short-term price fluctuation.