Factors impacting gold
So far in this series, we’ve looked at various factors impacting gold’s outlook in 2018. The most recent factor supporting gold prices is the fear of a full-blown trade war. While a trade war doesn’t seem to be very likely, given how Trump exempted many more countries from the proposed steel and aluminum tariffs, the ensuing uncertainty could be enough for investors to seek shelter in safe-haven assets—including gold.
Moreover, this trend is already hurting the appeal of the US dollar (UUP), along with other factors such as international investors’ falling interest in US debt. These factors could keep the gains capped in the US dollar, supporting gold prices.
Other factors—such as the Fed’s rate hike trajectory—currently bode well for gold. If import tariffs and other domestic factors lead to increased inflation in the economy, gold prices should remain supported due to its inflation hedge appeal, which could be counteracted to an extent through the Fed’s more aggressive policy stance.
Financial uncertainty and volatility also appear to be on the rise. This increased volatility has caused fund managers to rethink their asset allocation strategies.
Assessing gold’s outlook
A potential upside or downside to gold prices could depend on which factor exerts more influence. The short-term outlook, however, remains bright—given increasing uncertainty and volatility amid rising trade fears and a weakening US dollar.
In this scenario, gold (GLD) and gold stocks (GDX)(JNUG)—such as Barrick Gold (ABX), IAMGOLD (IAG), Kinross Gold (KGC), and Newmont Mining (NEM)—could rise further. ABX, IAG, KGC, and NEM have returned -15.9%, -11.5%, -16.0%, and 0.2%, respectively, year-to-date.