Opinion with Peter Hug
Gold Did Its Job
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
(Kitco News) - Gold has once again proved a viable diversifier in a balanced portfolio. As investors scrambled to meet margins on equity calls and found liquidity lacking as global markets were swinging widely, gold provided the liquidity for investors. The catalyst of higher yields and fears of accelerating inflation caused analysts to re-examine equity valuations, and the large expected rise in the U.S. budget deficit on the back of the tax cuts and proposed infrastructure plan leaves serious questions on what higher yields will do to debt-financing costs. At a minimum, we would expect the Fed to be more conservative on the trajectory of interest-rate increases, which should translate into a weaker dollar in the medium term. We remained constructive on gold last week, seeing the weakness as a liquidity event and not a fundamental reversal. The key pivot was the euro’s ability to hold and bounce of the 1.22 euro/dollar print. It appears the equity markets have stabilized and a positive close today may be the signal that an interim low was put in last week. Traders will look to tomorrow’s inflation numbers. Should we see another spike in inflation, that may push the 10-year back closer to 3%, which would be a negative for both equity and gold prices. Gold support rests at $1,322, with resistance at $1,332, with a break here suggesting a minimum print of $1,338.