A Single Spark enough to Trigger a Short-covering Rally in Gold Prices
Although the gold market is hovering near its lowest level in a year, one fund manager sees the current price as an attractive entry point to build a strategic position.
“Gold prices are down but far from out,” said Maxwell Gold, director of investment strategy at ETF Securities by Aberdeen Standard Investments in a telephone interview with Kitco News.
Gold said that he sees several factors that should help boost gold prices through to the end of the year including a weaker US dollar, a surprise rise in inflation pressures, and over-extended negative sentiment. He added that gold prices are likely to average the year at $1,275 an ounce.
“I am paying attention to gold at these levels because they are below my base-case scenario and if gold prices were to slip below $1,200 that would be an even stronger signal that investors need to look at gold as a strategic asset,” he said.
August gold futures settled Monday’s session at $1,221.30 an ounce, down 0.14% on the day.
He also pointed out that it is difficult to see gold prices going much below its recent 12-month low. Looking at sentiment, Gold said that the market couldn’t get any more negative than it already is. The latest trade data from the Commodity Futures Trading Commission showed that bearish speculative interest in gold is at historic levels.
“This negative sentiment is not sustainable over the long-term. The market could fluctuate a few percentage points from here, but I don’t see much further downside risk for gold prices,” he said.
As for the US dollar, Gold said that the greenback is still in a structural bear market, despite its 10% rally during the last three months. He added that momentum in the second quarter does not appear to be following through in the second half of the year, as the US Dollar Index has struggled to break above its recent 12-month highs.
Gold explained that growing deficits in a late-stage economic cycle will eventually weigh on the US dollar in the long-term and push inflation pressures higher. Rising inflation pressures, which threaten U.S. growth, will be a headwind for the greenback, he stated.
“Nobody is talking about inflation that goes hand-in-hand with a late-stage business cycle,” he said. “We see unprecedented complacency in the marketplace and that is why we haven’t seen a flight to quality. However, we expect this sentiment will shift in the second half of the year.”
Gold added that a single spark could be enough to trigger a short-covering rally that will eventually stabilize the prices at a higher level. – Neils Christensen
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