“Gold prices may fluctuate in the short term, but metal is expected to potentially provide stability, over the medium term, as a result of geopolitical tensions and deteriorating government finances.”
- Gold prices have remained resilient this year, rising around 30% year to date.
- The recent uptick in gold prices, along with the USD, was led by escalating geopolitical tensions.
- Investors should look for sources of portfolio stability as geopolitical tensions stay high.
Gold prices have rebounded partially over the past few days due to escalating geopolitical tensions between Russia and Ukraine. Metal fell in the aftermath of Donald Trump’s victory in the US elections, which triggered an upward move in the US dollar and bond yields. Markets believe that the policies of President-elect Trump could push up inflation, causing the Fed to rethink its interest rate cuts. The sustainability of this rebound in the near term depends on the potential trajectory of interest rates. Falling rates may increase the appeal of gold as it is not an income-generating asset. In the long term, expansionary fiscal policies (stimulus) and a deterioration in government finances put downward pressures on government-backed currencies such as the dollar, fueling demand for an alternative store of value. Buying by global central banks will also affect prices.
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