Gold Price influences in the month ahead

The month ahead is likely to have several global economic and political influences on the price of gold.

Prices dropped by about 1.5% in May, with gold finishing the month at A$1,719 an ounce.  Gold price movements often go in the opposite direction to major currency movements, particularly the $US. That’s because people tend to invest in gold when their confidence in paper currencies falls as they devalue.

The $US strengthened by almost 4.5 per cent in May, so it wasn’t surprising to see the price of gold fall accordingly. The $US dollar has strengthened on the back of recent interest rate rises in the US and there could be more of those on the way. US interest rates had been at record lows for an extended period in the aftermath of the global financial crisis.

Trade wars

On the positive side for the gold price, gold tends to become a haven during times of international tension. The current trade war between the US and China appears to be escalating. Both countries have threatened the other with billions of dollars’ worth of tariffs.  The US plans to impose a 25 per cent tax on China’s exports to the US in response to China’s policy of forcing American business to hand over their intellectual property to China if they want to do business there.

Prices of affected goods around the world  are expected to rise accordingly, which could adversely affect international trade and the global economy. Again, gold tends to perform better when the international economy is moving in the opposite direction.

In addition to the measures against China, the US is also about to impose tariffs on Canadian, Mexican and European Union steel and aluminium.  Steel will be hit with a 25 per cent tariff and aluminium 10% to help protect America’s steel industry and shore up jobs. All the affected countries have vowed to retaliate with tariff measures against the US

Canadian Prime Minister Justin Trudeau for example announced that “we are imposing dollar for dollar tariffs for every dollar levied against Canadians by the US”, while European Union Commission President Jean-Claude Juncker has promised “counter-balancing measures” soon.

Looming US/North Korea leaders’ meeting

US President Donald Trump is also scheduled to have an historic meeting with North Korean leader Kim Jong-Un in Singapore on June 12.  The US currently has strict economic sanctions in place to try and get North Korea to denuclearise. If political tensions ease after the meeting, this may place downward pressure on the gold price.