By Barani Krishnan
Investing.com - Gold was near six-year highs Thursday, which could be the start of a multi-month rally if U.S.-Iran tensions come to a head and intersect with an anticipated Federal Reserve rate cut.
Spot gold, reflective of trades in bullion, traded at $1,387.79 per ounce by 1:11 PM ET (17:11 GMT), up $27.40, or 2%, as it extended Wednesday’s run higher after the Fed signaled rate cuts from as early as July. Bullion earlier peaked at $1,393.27, its highest level since September 2013, when it traded above $1,416.
Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled up $48.10, or 3.6%, at $1,396.90 per ounce. The contract hit a 14-month high of $1,397.70 earlier.
With both bullion and Comex gold coming within striking distance of $1,400 an ounce, many analysts think a berth there for the precious metal is almost assured at the current momentum.
Some, in fact, talk now of $1,500 levels if conflicts in the Middle East reach new heights after Thursday’s downing of a U.S. drone by Iran. President Donald Trump called the attack “a very big mistake.” Later, however, he said it may have been a mistake by an individual.
There are also signs that the Fed could cut rates by 50 basis points next month, which would be a boon to gold and other precious metals.
“Gold should go through $1,400, and $1,500 looks like the next big round target,” said Philip Streible, senior market strategist for precious metals at RJO Fututres in Chicago. “Of course there are a lot of stop-losses out there that need to happen first.”
“Still, it was an incredible move we had overnight, between the extremely dovish Fed and the increasing geopolitical threats brought on by Trump’s statement that Iran made ‘a very big mistake,’" he added. "What we have is an almost a perfect storm for gold bears right now.”
Lower interest rates make safe-haven assets such as gold, which does not yield interest, more attractive, while weighing on the dollar. The U.S. dollar index, weighed against a basket of six currencies, hit a three-month low on Thursday at 96.15.
Since June began, gold has only settled down twice as investors piled into the precious metal as a hedge against a weakening of the dollar. The U.S.-China trade war, steadily escalating until this week’s tweet by Trump that he planned to resume talks with Chinese President Xi Jinping, had also fed the buying fervor in gold.
This month alone, Comex gold has gained almost $90. The futures market is on track for a 6.5% gain in June after a 1.6% rise in May. That would be its best back-to-back monthly gains since the Jan-Feb 2017 period, when it also rose more than 8% in total.