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Commodities

Gold shines even brighter through darkening geopolitical clouds

Net long positions reach highest level since November

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  © Reuters

TOKYO/HONG KONG -- Investors continue to pour their money into the safe haven of gold, pushing net long positions of the precious metal to their highest level in five months.

Amid rising tensions over the nuclear issue on the Korean Peninsula, surprise missile strikes in Syria and the first round of the French presidential election, investors have felt little need to pull out their assets out of the precious metal. Instead, a series of events have led net long positions of gold to reach 200,677 contracts, or 624.2 tons, as of April 25, up 2.5% from a week before, according to the U.S. Commodity Futures Trading Commission. The position marks the highest level since early November last year.

Meanwhile tensions on the Korean Peninsula remain, as North Korea on Monday suggested that it would continue its nuclear weapons tests despite repeated warnings from U.S. President Donald Trump.

While some concerns are lingering, other political risks are looming too. The latest one is the tax reduction plan proposed by Trump last week. The proposal, which would cut corporate tax to 15% from 35%, is seen as unlikely to win support, and "investors are questioning its viability," said Koichiro Kamei, a financial and precious-metals analyst. "Uncertainty is spreading over the Trump administration's ability to deliver on its promises, and it is making investors reluctant to let go of gold."

Concerns over the upcoming presidential elections in Iran are also surging into the market. The election will take place this month at a time when Trump is toughening his stance toward Iran, and anti-American sentiment grows among the Iranian public. "Rising tensions between the U.S. and Iran over the nuclear issue are pushing gold demand up," said Satoru Yoshida, commodity analyst at Rakuten Securities Economic Research Institute.

It is not only geopolitical risks that worry investors. Market analyst Itsuo Toshima said that investors are paying close attention to the U.S. Federal Reserve's rate hike in the coming months. "Fund managers will likely switch to profit taking ahead of the anticipated Fed rate hike in June," he said. "This should push gold prices down at least temporarily to around $1,250 per troy ounce."

Benchmark New York gold futures in recent weeks have been standing firm. On Monday it marked $1,255.5 per troy ounce, more than 4% higher than the recent low seen in mid-March.

(Nikkei)

Nikkei staff writer Mariko Tai in Hong Kong contributed to this story.

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