Gold broke above $1,300 last week and is on a steady rise as tensions continue to rise between North Korea and the U.S. Some market experts now predict the precious metal could strengthen further.
"There is a combination of events driving gold higher, including both political uncertainty and hedge fund buying. If these extreme political circumstances continue it could drive the price to $1,400," Nizam Hamid, ETF strategist at WisdomTree said in a press comment on Thursday.
The current period of elevated uncertainty, both in terms of U.S. domestic policy and in foreign diplomacy, is supporting gold prices, according to Hamid.
"Given where valuations are for other asset classes, there is real potential for gold to continue to rally, especially if mainstream investors get in on the trade."
Gold is currently trading around $1,340 per ounce. It is up 2.45 percent over the past seven days and year to date is up around 16 percent. Investors tend to move into safe-haven assets such as gold, swiss franc and the Japanese yen in times of uncertainty and turmoil as traditional assets such as stocks and bonds could prove to be a volatile investment.
However, lower bond yields and dollar weakness are also supporting gold, according to UBS strategist Join Teves.
"In addition to interest in gold as a safe-haven, other factors have also remained supportive. U.S. yields and the dollar remain near the lows amid weaker-than-expected August employment data and the potential for the economic costs of Hurricane Harvey to weigh on gross domestic product growth," Teves said in a research note published earlier this week.
As gold is priced in U.S. dollars, it is sensitive to U.S. interest rates. Recent data weakness is driving concerns that the Federal Reserve may delay hiking interest rates in the short term, which is weakening the dollar and supporting gold. The dollar index, a measure of the U.S. greenback against a basket of foreign currencies, is down more than 10 percent year-to-date to 91.861.
Buying activity is also gold supportive: long positions in gold (bets that gold prices will rise) increased by 16 percent in the week ending 29 August, while gold exchange traded funds rose by half a million ounces in September and are up 5.33 million ounces year-to-date, according to UBS data.
But downside risks remain. For instance, if the dollar rebounds, then gold prices would fall, warns Carsten Menke, commodities research analyst at private bank Julius Baer.
"Given the solid growth backdrop in the United States and the outlook for higher interest rates, we still expect a rebound of the U.S. dollar," he said in an email on Thursday.
"Adding prevailing bullish sentiment in the futures market as well as sluggish demand in the physical market, we see more downside than upside from current levels and shift our view to cautious."
Menke added that Julius Baer's three-month and 12-month price targets for the yellow metal remained at $1,200 per ounce.