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With Gold Rallying, Analysts Say $1,400 Is Its Next Stop

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(Kitco News) - Some analysts are suggesting gold’s rally could carry all the way to $1,400 an ounce since a “perfect” atmosphere has developed, including low interest rates, a weak U.S. dollar, a pickup in physical buying and continued geopolitical tensions.

Comex December gold traded as high as $1,331.90 an ounce Tuesday, its strongest level since November. As of 10:21 a.m. EDT, the contract was up $10.40 to $1,325.70.

An overnight leg higher came after North Korea reportedly fired a missile that flew over Japan before landing in the sea, thereby prompting safe-haven demand due to renewed geopolitical tensions, analysts said. However, they emphasized that other catalysts are also at play, including the euro’s move above $1.20 for the first time since early 2015.

There’s an old market adage that says upward bursts in gold due to geopolitical tensions tend to be short-lived only for as long as there are fresh headlines. But with more factors than North Korea underpinning gold, analysts look for further gains.

“We’ve been writing in our letter, going back about six weeks, that we’ve been forecasting $1,350,” said Bill O’Neill, one of the principals with LOGIC Advisors. “That’s our current forecast, but I think the market is probably going to go beyond that and go to $1,400-plus.

“Gold is very much a psychological commodity. There are a bunch of potential events that can happen. There is North Korea, the currencies, and who knows what – with Trump – is going to happen. You have geopolitical risks. There is just a myriad of factors that create a perfect background or atmosphere for gold prices.”

Phil Flynn, senior market analyst at Price Futures Group, pointed out that gold is on track to beat the U.S. stock market in a full calendar year for the first time since 2011 and is likely to continue attracting buyers. On the technical charts, gold made a “major breakout” to the upside, he added.

“We think by breaking above $1,300, we’re probably on the way to $1,400,” Flynn said. “We think a major bottom is in place. The seasonality is very strong.”

Gold is approaching the time of year when physical demand tends to pick up ahead of key gold-buying holidays in Asia.

“One of the things we’ve been saying is gold is the poor man’s bitcoin,” Flynn said. “Everybody has been buying bitcoin for the same reasons they used to buy gold. With that incredible run we’ve had in those cryptocurrencies, gold is actually undervalued in relation.”

O’Neill described North Korea as more of a “background” factor rather than the sole factor driving gold higher.

“You have to look at this in totality,” O’Neill said. “You have the euro over $1.20….Also, interest rates have remained very low.”

He commented that speeches from Federal  Reserve Chair Janet Yellen and European Central Bank President Mario Draghi, which were delivered at a symposium in Wyoming Friday, did nothing to dissuade markets from thinking the central bankers remain in the dovish camp.

“And then you have technical buying. It’s been building on itself,” O’Neill continued, adding that funds have been bullish on the metal.

Additionally, O’Neill reported that physical demand has been good in key gold-buying nations, including China.

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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