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Gold Could Fall To $1,200 In the Very Near Term - BNP's Tchilinguirian

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(Kitco News) - Gold investors could see more pain in their portfolio as one commodity strategist sees further downside potential for the yellow metal.

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Gold investors could see more pain in their portfolio as one commodity strategist sees further downside potential for the yellow metal.

In an email comment to Kitco News, Harry Tchilinguirian, head of commodity strategy at BNP Paribas said that he sees gold falling closer to $1,200 an ounce in the “very near term.”

His comments come as the gold market finds some bargain hunting after Wednesday’s nearly 1% drop. However, despite the small recovery, gold prices continue to hover near its recent 12-month lows. August gold futures last traded at $1,247.50 an ounce, up 0.24% on the day.

Gold, which is seen as a traditional hedge against price pressures, has shown little interest in the latest inflation data, which hit their highest level in six years, according to the June Consumer Price Index.  Tchilinguirian said in his comment that inflation pressures aren’t helping gold because the inflation numbers support higher interest rates.

“When it comes to inflation, market measures like the 5 and 10-year breakevens have, after increasing at the end of 2017, been by and large fairly stable year to date,” he said. “So the perspective of rising nominal rates with stable inflation would suggest higher real interest rates, which in turn only raise the opportunity cost of holding gold.”

However, it’s not just rising interest rates. Tchilinguirian said that geopolitical uncertainty and a growing global trade war is also supporting the U.S. dollar, adding further headwinds to gold.

“Gold has come under heavy pressure with the rapid appreciation of the US dollar since April. I am inclined to think that there is potential for further US dollar appreciation, in particular, if sentiment were to turn sour for emerging markets in the context of a US/China trade war,” he said.

The U.S. dollar was one of the only global assets that came out unscathed in Wednesday’s across-the-board selloff in financial markets. The U.S. government spooked global investors when it threatened to impose another $250 billion in tariffs on imported Chinese goods.

Not only is Tchilinguirian bearish on gold but he said even a drop to $1,200 an ounce might not attract enough investors back to the marketplace to reverse the current downtrend.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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