Dubai: A number of factors that could trigger a rally in gold are beginning to align.

Political uncertainty in the United States, a tumbling dollar and geopolitical tensions could help gold, which hit its highest level in a year last week, continue its rallying.

International spot gold rallied to a high of $1,357.61 (Dh4,982.43) an ounce, the highest level since July 2016, before closing at $1,346. Gold has rallied 17.35 per cent so far in the year.

“Increased safe-haven and diversification demand from real money investors looking for a hedge against rising geopolitical tensions and Trump’s inability to move forward have also been factors this year,” Ole Hansen, head of commodity strategy at Saxo Bank said.

If gold breaches $1,380 an ounce, this would “set the stage for a continuation towards $1,484 and that would be the signal for us to raise the forecast,” Hansen said.

This, plus lurking geopolitical tensions on North Korea following the hydrogen bomb incident, may support the yellow metal going forward.

“The fear about rising geopolitical tensions are still very much on the dashboard and the lights could start flashing red anytime; and that would trigger a massive rally for gold,” said Naeem Aslam, chief market analyst with Think Markets.

Visible support

This support for gold has been visible through the actions of hedge funds, who over the past five weeks continued to add bullish positions while reducing sell positions. In the week to August 22, they increased their net-long gold position to 196,000 lots, which is 31 per cent below the record 287,000 lots from July 2016.

The complete capitulation of the gross-short (sell) position to just 13,200 lots has seen the long-to-short (buy vs sell positions) ratio jump to 16, the highest level seen since December 2012.

“Such relatively extreme positioning in favour of the long side could become an issue should the current breakout fail and gold revert below support, but for now it is mostly an indication of the strong belief in higher prices,” Hansen said.

Oil

Oil prices are likely to extend losses this week as analysts expect demand to be impacted due to hurricane Irma.

On Friday, Brent crude closed flat at $53.78 per barrel, while West Texas Intermediate closed 3.28 per cent lower at $47.56 per barrel.

“Oil is increasingly seeing subdued demand due to the ongoing hurricane situation over in the US. Hurricane Irma could knock out more refineries and that would shock the demand,” Aslam said.

Brent ended the week up 1.9 per cent while US crude was up 0.4 per cent, paring most of its earlier weekly gains on worries on the continued impact of hurricanes on demand and supply.

The spread between Brent and WTI moved beyond $5 per barrel.

“This has come in response to improved Brent fundamentals and a growing glut of WTI crude oil after Harvey knocked out refinery capacity along the Texan Gulf Coast,” Hansen said.