How the Fed and Saudi Arabia Could Affect Gold Prices



Yesterday, gold prices rose around 1%, or $15.90, following drone attacks on Saudi Arabia’s Aramco oil facilities on September 14. The US blamed Iran for the attacks, but Iran denied the allegations. On September 15, Donald Trump tweeted, “locked and loaded depending on verification,” implying military actions in the Middle East. Just last week (ended September 13), gold active futures fell 1%, marking their third consecutive week of decline.

Last week, the S&P 500 (SPY) and Nasdaq 100 (QQQ) rose 1% and 0.5%, prompting gold prices to fall. During the equity market turmoil last month, gold prices gained 6.5% while the S&P 500 and Nasdaq 100 fell 2% and 1.8%, respectively. The Hong Kong crisis and Argentinian sell-off also boosted gold.

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Should you invest?

If the crisis in the Middle East escalates and Hong Kong protests continue, gold could have more upside, but that upside could be limited by optimism over US-China trade talks scheduled for next month. However, gold’s current correction could provide a good entry point for investors. On September 13, gold active futures settled around 2.8% below their six-year high.

Moreover, this week, the Fed could slash interest rates by 25 basis points to reduce the impact of trade policy uncertainty on the economy. Fed governor Jerome Powell also expects central banks around the globe to further reduce interest rates. On a long-term basis, central bankers’ dovishness could boost gold prices. Experts have predicted gold might reach $2,000.

Central banks are buying gold

This year, gold prices have risen by 16.6%, boosted by monetary policy and central bank purchases. The World Gold Council reports that in this year’s first half, central banks bought 374.1 tonnes of gold. That purchase total was the largest figure recorded in the first half of the year in 19 quarters. Emerging markets’ central banks have been the biggest gold buyers, potentially because of slowdown fears.

Who expects gold prices to rise?

Legendary investor Mark Mobius has advised investors to make gold at least 10% of their portfolio. He expects gold prices to rise in the coming days. In the second quarter, Barrick Gold was one of billionaire hedge fund manager Stanley Druckenmiller’s top five buys.

UBS has also advised clients to accumulate gold. It expects gold could move above $1,600 in the next six months. Citigroup expects gold to surpass $2,000 in the next two years.


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