Gold Won't Take A Beating Forever; Here's What It Takes To Reach $1,400
(Kitco News) - Gold has been held back by a stronger U.S. dollar but the yellow metal could get a boost if the Federal Reserve reigns in expected rate hikes, this according to Chris Mancini, research analyst at Gabelli Funds.
Gold prices have been on a steady decline ever since the June 13 Fed meeting, with spot gold down nearly 5% since its June highs. The U.S. dollar index, DXY, has rallied 1% in the same period.
“I think what ultimately drives gold higher will be the Fed pausing and then the market pausing in the Fed easing. And so if the Fed is easing while the ECB [European Central Bank] is printing and the BoJ [Bank of Japan] is printing then I think gold will do really well.” Mancini told Kitco News.
The commodities analyst noted that while tailwinds may be present for gold, he expects the yellow metal to trade range-bound for the remainder of the year.
“I think that gold will be range-bound for the rest of the year, between this $1,250 [an ounce] and $1,350 range,” he said.
Mancini said that for the short-term, speculators are driving down gold prices as they buy U.S. dollar futures and short gold futures.
“The stronger dollar has been due to this kind of trade war that’s been going on between the U.S. and China and so it’s really been a haven trade,” he said.
President Donald Trump’s proposed tariffs on China and other trading partners have met retaliatory measures. Canada is the latest country to counter, slapping $16.6 billion worth of tariffs on U.S. goods.
Escalating tensions between the U.S. and other major economies have prompted some analysts to speculate that a full-fledged trade war may be on the horizon and this could prompt the Fed to slow its pace of rate hikes.
Mancini added that the Fed will only likely ease up on hiking if macroeconomic conditions worsen.
“I think what gets gold to really move will be a view that the economy is going to slow and the Fed is going to halt its tightening cycle,” he said.
On silver, Mancini said that like gold, the white metal is in need of a pickup of investment demand, and will only likely rally once gold breaks above $1,400 an ounce.
“The marginal demand from silver comes from investment demand primarily in the U.S., and so if the gold price picks up then I think the silver price will pick up,” he said.
Mancini noted that at current prices, investors should look into gold as a buying opportunity, starting with the bullion.
“I think it’s an opportunity to buy physical gold here, and then as gold moves higher, start to get into the gold stocks,” he said.