Despite what spot shows now, the market for gold is transitioning from bear to bull. According to Bloomberg Intelligence (BI), it’s likely that the metal is heading towards the higher $1,400.
Gold won’t stay around the $1,300 mark much longer while the market waits on peak U.S. dollar as well as more volatility in equity space to raise the prices even more according to Mike McGlone, a BI senior commodity strategist.
BI’s report this month stated that gold is currently stuck close to the $1,300 per ounce mark in 1Q. However, it’s set to move above the $1,400 per ounce mark instead of consolidating around the $1,200 mark. Six years have passed since gold has traded over the $1,400 mark. A few months ag it was even below $1,200 an ounce.
The set-up for gold looks like it did back in 2002 during the peak of the U.S. dollar while the gold market turned bullish.
A rise in the trade-weighted broad dollar should seal a recovery of gold even more than two years ago. In 2017, the volatility of the stock market was declining to multi-decade lows. Meanwhile, the yields and rates were rising. Now, the exact reversal of conditions is in place. The dollar is strong helping boost up gold.
Rising US Dollar Strength Boosts Gold Price
A dovish Federal Reserve also helps gold rise above any resistance levels according to BI’s report.
Futures have switched to expecting a Fed easing in after 2018’s unsuccessful gold-bear raid. Managed-money position on CME-traded gold futures made the most net short this past October as a portion of open interest in the database since 13 years ago. As part of an environment of historically low volatility, such an extreme is a prime candidate material for creating a longer-term price bottom. The exchange-traded fund seems unstoppable, and its inflow indicates there’s an endorsement of higher prices, according to McGlone.
The strategist says that the change from rate hikes to cuts could be the unwinding of gold’s strength as well as the dollar.
If the futures are correct and rate cuts are on the near horizon, a peak dollar is more likely and supports gold and other precious metals. The correspondence between metals and the dollar is one of the most negative according to McGlone. It’s expected that the strong dollar performance from last year marked a final breath for the bull market. It also tells that the greenback could remain towards the bottom of performers in 2019 which seems to be supportive of metals mostly.