Gold drifts marginally lower; Scotia Bank calls 2019 summer rally a ‘statement breakout’

(USAGOLD – 1/14/2020) – Gold drifted marginally lower this morning awaiting details of the US-China phase one trade deal scheduled to be signed tomorrow. It is priced at $1544 – down $1 on the day.  Silver took a more decisive turn to the downside shedding 15¢ at $17.78.  With tensions easing between the United States and Iran, the metals at this stage have pretty much given up the geopolitical premium tacked onto prices last week. The very fact, though, that gold has begun to respond so forcefully to periods of market duress is a matter of interest to Scotia Bank, one of the principal traders of the precious metal in international markets.

“Gold,” it says in its 2020 outlook for precious metals published this morning, “made a statement breakout in the summer of 2019” and “has entered a new bull market and begun to internalize geopolitical, political, trade & growth risks, which is a constructive new development, compared to its responsiveness over the previous 6 year bear market.” Gold, the report concludes, “has shown to adapt to being both (1) a real asset hedge against equity inflation and (2) a safe haven / late-cycle hedge against the possibility of sustained equity volatility or weakness.” The precious metal, it says, will average $1600 in 2020 with $1700 the top of the range.

Chart of the Day

Line chart showing the oil gold ratio

Chart note: “The range of potential scenarios is very large,” says Goldman Sachs’ Global Head of Commodities Research  Jeffrey Currie, “spanning oil supply shocks or even oil demand destruction — which would be negative to oil prices. In contrast, history shows that under most outcomes gold will likely rally to well beyond current levels.”  Currie’s comments came as part of a report issued recently touting gold as a better hedge against geopolitical risks than crude oil implying a higher oil-gold ratio in the years to come.

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