Gold not backing down after Kim Jong Un fails to deliver 'Christmas surprise'

Gold may top $1,600 an ounce next year, UBS says

Gold gained a foothold above $1,500 an ounce even after North Korean leader Kim Jong Un failed to deliver his “Christmas surprise.”

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The precious metal hit a seven-week high of $1,510 on Thursday morning, and may climb even higher next year.

A weaker U.S. dollar and uncertainties caused by the 2020 election and geopolitical risks make gold a “buy from a thematic angle, particularly on dips,” according to the Swiss lender UBS. The firm’s global wealth management team predicts it will hit $1,600 an ounce in 2020.

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The metal has rallied 17 percent this year amid geopolitical risks such as Kim's threatened "surprise," a comment widely interpreted as referring to a missile launch, and lower interest rates from central banks around the world.

Gold is a popular safe haven for investors seeking to maintain value when other financial markets are volatile, but it tends to drop when risks fade. That hasn't happened yet this time.

The trade war between the U.S. and China was center stage throughout 2019, but a partial deal reached in December helped to deescalate the friction. It could be that the market still views Kim as a threat, or that investors are nervous about who will occupy the White House in 2021.

Central banks around the world cut rates 131 times in 2019, compared with just 21 rate hikes, in an effort to jumpstart stagnating economies, according to cbrates.com. The global economy is estimated to have grown at a 3 percent pace in 2019, according to the International Monetary Fund, the weakest since the financial crisis.

At the conclusion of its Dec. 10-11 meeting, the Federal Reserve said it expects to keep interest rates on hold throughout 2020 before hiking once in 2021. Fed Chairman Jerome Powell said inflation would have to be “persistent and significant” before the central bank raises rates again."

The central bank's monetary policy cut rates three times in 2019, to a range of 1.5 to 1.75 percent, after nine hikes following the financial crisis.

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Bank of America’s Global Commodity Research team thinks that is exactly why gold is headed lower next year. They have a 2020 year-end target of 1,494 an ounce “an uplift in US inflation could also come with higher interest rates.” Their outlook was published before the Fed said it expected to keep rates steady next year.