Have Gold’s Fortunes Changed for Good after Hitting $1,400?


Jun. 29 2019, Updated 1:40 a.m. ET

Gold’s turnaround in fortunes

After remaining soft for the first five months of the year, gold prices (GLD) have seen a sudden turnaround since the end of May. Since May 29, the SPDR Gold Shares (GLD) has gained 11%, and the VanEck Vectors Gold Miners ETF (GDX), the leveraged bet on gold, has returned 25.5%. Investors in even more leveraged funds such as the Direxion Daily Gold Miners Index Bull 3X Shares ETF (NUGT) and the Direxion Daily Junior Gold Miners Index Bull 3X Shares ETF (JNUG) have made a killing. This month, they have returned a whopping 91.7% and 87.1%, respectively. To learn more, read A Perfect Storm for Gold: All Macro Drivers Align.

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Factors supporting gold

The Fed pivoted after US-China trade war tensions escalated with Donald Trump’s tweet in May, which supported gold. Other factors supporting gold include the US dollar (UUP) weakening on prospects of Fed rate cuts, geopolitical tensions, and weaker economic numbers. Gold prices have broken above the key level of $1,400 per ounce, which has attracted even more investor interest through short covering as well as fresh buying.

Gold drivers going forward

There are some catalysts investors should keep an eye on for hints about gold price direction (GLD). The economy’s recent weakness was one factor behind the Fed’s pivot from being hawkish to dovish. Therefore, investors should watch for economic reports, especially out of the US and China. Tensions have grown in the Middle East after Iran struck down a US drone. In response, the US has warned of retaliation and military action. The escalated tensions could support safe-haven buying of gold. The most important catalyst for gold might be Donald Trump’s and Chinese president Xi Jinping’s meeting at the G20 summit. The revival of trade talks has been the single biggest reason for the Fed’s pivot.

You can read Gold Breaches $1,400: What’s the Next Stop? for a detailed discussion on gold’s drivers.


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