Make Kitco Your Homepage

The Dollar Won't Drive Gold In 2018, This Will...

Kitco News

(Kitco News) - When talking gold prices, analysts are quick to point to the U.S. dollar given their historically inverse correlation.

However, one analyst is looking at stock markets to give his 2018 gold outlook.

“Unless the dollar trend shifts to strength in 2018, the focus for gold's next rally leg should be the stock market's potential for mean reversion,” noted Mike McGlone, commodities strategist for Bloomberg Intelligence, in a report Thursday.

“If the dollar has peaked and stock-market volatility normalizes a bit in 2018, then the $1,400-an-ounce handle should come into play for gold,” he added.

Currently, gold prices continue to trade below the $1,300 handle despite a slight rebound Thursday following moderate losses in U.S. stock markets. December Comex gold futures were last seen at $1,289.80 an ounce, up 0.53% on the day.

“Trading at half the price-to-value of the S&P 500, gold has good support,” McGlone noted. “Investors reluctant to sell strong-momentum stocks are buying more gold to diversify. Based on ETF holdings, the implication is that stocks, whether higher or lower, may favor gold prices. Greater stock-market volatility usually supports gold's attribute as the primary liquid alternative asset,” he added.

And with the record-setting stock market “barely” beating gold this year, McGlone said the metal is worthy of greater attention.

“Since the beginning of the Federal Reserve's tightening cycle in December 2015, spot gold and the S&P 500 Index are up about the same, just above 20%,” he wrote.

“Despite all of the attention on stocks, gold may be looking ahead to a more favorable endgame at a steep discount to historical highs with inflation brewing, a potential dollar peak and the lowest CBOE Volatility Index ever.”

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.