Metals Stocks: Gold hits more-than-6-year high as geopolitical fears rise

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The gold rally continued Tuesday, taking the precious metal to the latest in a string of more-than-six-year highs, as investors kept an eye on protests in Hong Kong, the fallout from Argentina’s weekend primary elections and stock rout, as well as worries over the economic outlook tied to the U.S.-China trade war.

“There was no place like gold this morning as the geopolitical tensions encouraged investors to sprint towards safe-haven assets,” said Lukman Otunuga, senior research analyst at FXTM, in a note.

Gold for December delivery GCZ19, +0.76%  on Comex was up $10.60, or 0.7%, at $1,527.80 an ounce after trading as high as $1,546.10 an ounce, according to FactSet, its highest since April 2013. Gold is up 6.5% in August, contributing to a 19.5% year-to-date rise, based on the most-active contract. September silver SIU19, +1.22%  rose 26.9 cents, or 1.6%, to $17.34 an ounce.

Gold gave back some ground after data showed the U.S. consumer-price index rose 0.3% in July, in line with forecasts, while the core reading, which strips out food and energy, also rose 0.3%. Year-over year, consumer prices rose 1.8% versus a 1.6% rise in June.

Fears of a potential crackdown by China on protests in Hong Kong have stoked demand for haven assets, including gold. Analysts said the results of a Sunday primary election in Argentina that saw a poor showing by pro-business President Mauricio Macri, raising questions about his prospects for re-election this fall, also stoked haven demand after sending the Argentine peso tumbling on Monday.

That also feeds into worries over the economic outlook that have been dogged by the deepening U.S.-China trade war. Stocks remain under pressure, with Wall Street on track for a lower start. Investors have also piled into government bonds, sending yields lower and diminishing the opportunity cost of holding nonyielding gold.

While there are several reasons for gold’s 2019 rally — and room for more upside over the long term — some analysts are warning about the potential for a near-term pullback.

“We think that gold prices have risen too sharply in a short period of time and we expect a correction in the coming months,” said Georgette Boel, senior FX and precious metals strategist at ABN Amro, in a note.

She cited “extreme” investor positioning, with net-long positions held by speculators in the futures market at a high level and total positions in exchange-traded funds also substantial.

“If the newsflow becomes less supportive, a profit-taking wave could push gold prices easily towards $1,400 per ounce again. In addition, we think that the amount of monetary policy easing by the Fed and the ECB for this year is mostly priced in,” she said.

She also expects the U.S. dollar to be resilient over the rest of the year despite Fed rate cuts, with the currency finding support on haven flows of its own. ABN Amro is sticking with a gold price forecast for the end of the year at $1,400 an ounce, but raised its forecast for the end of 2020 to $1,600 an ounce from $1,500, she said.

In other metals trade, October platinum PLV19, -0.63%  fell $2.10, or 0.2%, to $861.60 an ounce, while September palladium PAU19, -1.10%  was down $9.30, or 0.6%, to $1,421.50 an ounce.

September copper HGU19, -0.17%  was down 0.8 cent, or 0.3%, to $2.577 per million British thermal units.