Gold consolidated into the Wall Street close, elevated in risk-off conditions

• Gold prices can remain elevated as markets enter the New Year on geopolitical risks. 
• Gold prices testing the vicinity of 1590, targetting the 1403/30s.

 Gold prices have been consolidating in the latter part of the US session and ending on Wall Street around 0.3% higher having travelled between a low of $1,555.30 and a high of $1,573.14 to end around $1,569.89. 

Gold prices can remain elevated as markets enter the New Year cautious and in anticipation of potential escalations on the geopolitical front considering a half baked phase-one trade deal that is yet to be signed between the US and China, as well as the latest, and far more worrisome, dramatic escalation of risks of war between Iran and the US. 

Investment demand still to grow this year

"The safe-haven appeal may have added too much oomph to gold's rally, as the added demand sent the yellow metal's to multi-year highs, but underlying investment demand is still set to grow this year," analysts at TD Securities argued, adding:

It's worth recalling, that some 80% of demand growth is attributable to investment demand, which we think will be driven by capital seeking loss-aversion. After all, it is hard to find positive real yields in developed markets, and the Fed's asymmetric reaction function will likely keep suppressing real rates for some time — this will provide a tailwind for gold in 2020.

We have strong conviction that this theme is in its early stages, and will remain in play for some time. Notwithstanding, the safe-haven bid resulting from US-Iranian aggressions has also created excess demand for the yellow metal, likely suggesting that prices may have overshot in the near-term with a rising breadth of mean reversion signals implying a near-term short.

Gold levels

The calendar year 2019 saw gold advancing 18 per cent — the highest return since CY2010, when it had generated a return of nearly 30 per cent. At this juncture, a break of 1590 opens risk to 1603 and 1632.