The gold price may have slipped back a touch on positive trade news, but being an Australian holder of gold and gold stocks could still be a great idea if currency has anything to do with it.
You may have read plenty of pieces on here about how trade instability between the US and China has done wonders for the gold price over the past few weeks.
But now those tensions have started to ease, what does that mean for the gold price?
Well, we got the first few clues on that overnight with the gold futures (for August settlement) price dropping by 1.7 percent — the largest one day loss since June 2018 according to Dow Jones reportage.
So, not great news, if you predicate all your trading decisions on one data point (hint: don’t do that).
But there could be a silver lining for Australian gold holders: a weaker Australian dollar.
Given most contracts are settled in USD and most gold companies sell on USD contracts, those holding gold could see the value of their holdings rise in Australian dollar terms.
Westpac, for example, sees the AUD/USD cross-rate falling to 67c by December, down from its current 71c.
The bank has also priced in a cash rate cut to 0.75 percent by the end of the year, so it’s unlikely massive cuts in the cash rate are going to stimulate the economy to a large degree — meaning little upside for the Australian dollar.
But Westpac isn’t the only ones forecasting a stalling AUD.
While Westpac is a noted bear on the AUD/USD rate, the consensus is for the Australian dollar to more or less hold value against the greenback, but there are no shortage of those calling for a falling AUD.
Should the downside projections hold out, expect gold to glitter for Australian investors a little while longer.
This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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