Gold has continued to hold surprising well despite tough macro-economic conditions weighing against it.
With the unrelenting trade war between the US and China, a dominant US dollar and weakening international currencies, gold is facing all possible market headwinds and yet it is managing to hold around the price level of $1,200.
In this scenario, some analysts are already optimistic that as soon as the dollar adopts a more moderate direction or the tariff war sees some change in sentiment from both sides, an upward momentum for gold would be generated.
Kitco Gold Survey
The weekly Kitco gold survey shows that investors on Main Street as well as Wall Street expect gold prices to strengthen over the next week.
The Wall Street survey had 16 market professionals as participants, and nine of them (56%) believe that gold prices would go higher by next Friday. Five respondents (31%) predicted a neutral market, while only two respondents voted for lower prices.
Kitco’s online Main Street survey received 593 responses, out of which 302 participants or 51% predicted a rise in gold prices. About 33% (196 participants) said the prices would go down, while 95 participants predicted a sideways market.
Analysts Getting Bullish on Gold
Sixty-five percent (nearly two-third) of the Wall Street voters were bullish this week about gold prices. Adrian Day, chairman and CEO of Adrian Day Asset Management, said that gold has finally turned the corner and is likely to move up in the weeks ahead (even if unevenly.)
Walsh Trading’s director of commercial hedging, Sean Lusk, is also bullish. Lusk cites potential for short covering as managed money accounts hold a major bearish position. He believes that the US dollar now has a limited upside left, as the currency markets have already factored in additional monetary tightening.
RJO Futures’ senior commodities broker Daniel Pavilonis says that considering the below expectations job data in September combined with wage growth, chances are that gold could move higher. The data may contribute to some weakness in the US dollar and Treasury yields, paving the way for a price rise in gold, according to Pavilonis.
The editor of the Eureka’s Miner Report, Richard Baker, says that Comex gold is showing resilience above $1,200. Baker believes that at a minimum, the near-term low for the yellow metal is in, and it should trend higher from here.
LaSalle Futures Group’s senior market strategist Charlie Nedoss also opines that gold would rise, especially if the price in December closes above $1,200. Nedoss said that gold is building a base above $1,200, and bullish days are ahead. With the crude prices ranging above $70 a barrel, it will push gold to new highs.
Some analysts are betting that rising treasury yields, which are typically a headwind for gold, are likely to pull down the domestic stock prices. So the turning point in the current stranglehold of rising equities and tame gold prices may finally be here, assisted by gradually increasing inflation in the US.
Potential Triggers for a Gold Rally
According to Standard Chartered, geopolitical risks (for instance, uncertainty in Italy) could be trigger for a short covering gold rally. The recent spike in gold prices following the news of Italy’s fiscal crisis reveals that gold continues to be on the radar of investors in the event of an adverse geopolitical development.
The analysts at Standard Chartered said that if a geopolitical trigger boosts gold prices above the 100-day moving average, an ensuing short covering rally could quickly push up the prices towards $1,300 per ounce.
Standard also says that the seasonal gold demand along with buying from the central bank has already offset some of the weakness. It should begin to contain the downside for prices, but more substantial support could come from a stabilizing US dollar.
According to CME Group’s Senior Economist Erik Norland, Fed’s over-tightening in the coming times could push the economy towards a recession, giving a dramatic push to the gold prices.
Norland said that the US deficit expansion is massive, and in the event of over-tightening from the Fed, recessionary pressures could occur, resulting in rates cut back. That would lead to a mega bull rally in gold.