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Gold Prices Rise Above $1,600 on Simmering U.S.-Iran Tensions

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Gold prices hit $1,613 an ounce on Jan 7, triggered by reports that Iran launched more than a dozen missiles at two U.S. military bases in Iraq. This was in retaliation to the U.S airstrike on direct orders from President Donald Trump that resulted in the death of top Iranian general, Qasem Soleimani, last week. Earlier this week, President Trump had tweeted that “should Iran strike any U.S. person or target, the United States will quickly and fully strike back, and perhaps in a disproportionate manner”.

This aggravated fears of conflict escalation in the Middle East, rattling global stock markets and sending investors scurrying for the safety of gold. The benchmark 10-year Treasury yield has fallen to 1.8% and the 2-year rate has declined to 1.54%. While, the S&P 500 pulled back 0.3% to 3,237.18, the Nasdaq Composite dipped 0.03% to close at 9,068.58.The Dow Jones Industrial Average closed at 119.70 points or 0.4% lower at 28,583.68.

Gold had last seen these levels in 2013. Just a week into 2020 and gold prices have already gained 3.4% primarily due to heightened tensions in the Middle East. Notably, this follows a stellar impressive 2019, which was quite an eventful year for the yellow metal. The major highlight was the yellow metal crossing the threshold limit of $1,500 an ounce. Gold prices gained about 19% in 2019 - its strongest annual increase since 2010, wherein it had reported growth of 29.5%.

Uncertainty in the U.S-China trade front, geopolitical concerns between the United States and the Middle East, the Brexit mayhem and concerns over the global economic outlook compelled investors to seek safe-haven investment options like gold in 2019. Further, three rate cuts by the Fed only added to the rally.

The ongoing sluggishness in the manufacturing sector will also prove beneficial for gold prices. Per the Institute for Supply Management’s latest report, the U.S Purchasing Managers’ Index (PMI) declined to 47.2% in December 2019, contracting for the fifth consecutive month. This along with the uncertainties regarding the U.S-China trade war and tensions in the Middle East will support gold prices. Further, a low interest rate environment works in favor of gold. Notably, lower the interest rates, lesser will be the opportunity cost of holding non-yielding bullion, making gold an attractive option for investors holding other currencies.

Rising gold prices bode well for the Mining - Gold industry, which has to contend with escalating production costs including the cost of electricity, wages, water and materials. The industry has outperformed both the S&P 500 Index and the Basic Material sector in a year’s time. While the stocks in the industry have collectively gained 54%, the S&P 500 and the Basic Material Sector have rallied 25.1% and 1.6%, respectively.

Investors keen on the gold mining industry can take a look at New Gold Inc. (NGD - Free Report) , Sibanye Gold Limited and US Gold Corp (USAU - Free Report) . All of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors may also consider Zacks Rank #3 (Hold) stocks like Agnico Eagle Mines Limited (AEM - Free Report) and B2Gold Corp. (BTG - Free Report) . These stocks have healthy earnings growth projections for fiscal 2020 and have also been witnessing positive earnings estimate revisions lately. These companies also have a positive record of earnings surprises over the trailing four quarters.

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