Gold prices could come under pressure today, "risky" environment for shares in terms of higher interest rates, but some analysts expect that the price will recover and show that the precious metal may give investors some real protection against risks.
Currently, gold is trading with a cost of $ 1210 per troy ounce. During the session on Monday, its value dropped to $ 1204.45, the lowest level since March 15. The price is influenced by several factors, including rising interest rates, as they increase the impact on the growth of the dollar, which, consequently, is putting pressure on the metal in the dollar currency.
Nevertheless, the US inflation could be beneficial for gold, according to Nitesh Shah, strategist at commodities ETF Securities. Gold is traditionally considered to be an asset to hedge against inflation.
"We believe that US inflation will rise and will rise above 2%, so the real interest rate in the United States, despite an increase in interest rates will remain relatively low," - said Mr. Shah on Monday in an interview with CNBC.
Shah predicts that it will give the price of gold to rise to $ 1260 per troy ounce by the end of the year. He added that gold provides an opportunity to hedge risks.
"Gold continues to be a very good asset to protect against the risks, particularly in such key events as the escalation of tensions in the Middle East or strained relations between the US and North Korea. Due to these factors, we believe that the price of gold could rise if any of these problems will increase, "- he said.
"The current gold price also means that it is now much cheaper for investors using gold to hedge against the fall of the value of other assets", - says Adrian Ash, director of research at BullionVault commodity market.
Time to buy?
"Gold tends to rise when the value of other assets falls. It is best to invest in gold, when people lose confidence in the central banks ", - said Mr. Ash CNBC via e-mail on Tuesday.
"Gold and silver are likely to rise sharply if the ECB and even the Bank of England may join the Fed and cut their incentives," - he added.
Meanwhile, Suki Cooper, precious metals analyst at Standard Chartered Bank, also said that the current price offers an excellent buying opportunity.
"The price of gold at $ 1,200 an ounce, offers an attractive buying opportunity," - she said in a published research note on Monday.
But Cooper warned that there are some short-term risks that will affect the slight decrease in the price of the precious metal. First, the yield on 10-year Treasury bonds is about 2.4%.
"The increase in the value of gold has coincided with an increase in US bond yields to highs for the year, as well as a sharp increase in profitability in Europe to the highest levels in more than a year" - Joni Tevez said strategist at UBS.
Secondly, the greatest tax reform of India for 70 years, a tax on goods and services (GST), will affect demand in the month of July. The tax was introduced on July 1 and increased the tax on gold from 1.2% to 3%.
"According to media reports, the first trading day in July, demand fell by 50-75%", - said Cooper.
"Initial studies confirm our view that demand will be weak at first, and then recover," - she added.
Long and short positions in gold
According to UBS, despite these risks, the investments of investors is likely to support gold.
Net long position - when investors are betting that the price will be higher - have been reduced by 53%, or 12 million ounces, over the past four weeks as short positions - bets that prices will fall, increased. This change will limit the market power sales.
Based on materials WELTRADE
