WisdomTree’s Nizam Hamid (pictured) has speculated that gold could hit USD1,400 as political uncertainty and hedgies lift the price.
Hamid writes that gold has broken above USD1,300 for the first time in almost a year this week amid increasingly provocative military actions from North Korea.
“Hedge funds have also increased their positions in the safe haven, with a record USD19 billion of gold futures snapped up in the past month,” Hamid says.
“There is a combination of events driving gold higher, including both political uncertainty and hedge fund buying,” he says. “If these extreme political circumstances continue it could drive the price to USD1,400.”
Gold is a natural hedge to uncertainty around the globe, climbing as investors de-risk portfolios. However, it remains a long way off its previous peak above USD1,900 seen in 2011 at the height of the Eurozone crisis. Hamid says it remained one of the simplest and most liquid ways to hedge risk.
“As a mechanism for tactical trading, gold will always have a role to play, and in the current environment of elevated uncertainty it could certainly continue to climb,” he says.
While hedge funds have returned to the commodity, mainstream investors continue to shy away from gold as gold-backed ETFs have seen outflows of some 35 tonnes in the last five weeks, exiting the asset class despite the huge investment from hedge funds which have picked up 474 tonnes. Hamid comments that if retail investors started to change tack the price could jump sharply.
“Given where valuations are for other asset classes, there is real potential for gold to continue to rally, especially if mainstream investors get in on the trade,” Hamid concludes.