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Gold Is Giving Us Clues That It's Going to Rally Big Time

Kitco News

(Kitco News) - December’s volatility  has been a nail biter for gold but the last three days many contain the greatest clues as to where the metal is headed in 2018, this according to one market analyst and longtime commodities trader.

“The last three days have reconfirmed by commitment for a much higher gold price in 2018. We are making higher lows for the year – the recent behavior made me nervous, but something very telling happened in the last three days,” said Vince Lanci, founder of Connecticut-based Echobay Partners. 

Lanci said he could see the metal hitting $1,700 an ounce or higher in 2018, if correct, his forecast would be an over $450 rally from the current level of $1,250 an ounce. 

“On Tuesday we had a short covering rally. And Wednesday there was a 10,000 contract increase in December – that’s very unusual, that is an over 2.3% increase in open interest that comes on the heels of the day before, of people getting out – that is not common, but when it does happen it’s a sign that either a) shorts are getting stopped out or b) you have prop traders positioning themselves for asset allocators coming in,” Lanci explained.

The point Lanci stresses is that gold is now back in a “safe area” between $1250-$1275 an ounce.  “The $1,700 call I believe is going to come to fruition is on the table – [if gold gets] above $1275 I will double down on a momentum bet.”

Gold prices rose on Friday and were set for their first weekly gain in four weeks as uncertainty over the passage of U.S. tax reform pushed the dollar to a nine-day low against the yen. Spot gold was up 0.4 percent at $1,257.76 an ounce and set for a weekly gain of 0.8 percent.  U.S. gold futures were 0.3 percent higher at $1,260.50 an ounce.

Despite rising interest rates, a strong U.S. dollar and a persistent bull market in equities, gold managed to defeat the odds this year.The yellow metal, up close to 9% this year, was the shining star of the glum commodities space.

“With such low volatility compared to other commodities, how can you complain about a store of wealth that actually goes up?  Gold is the best risk reward product as 2017 has shown,” Lanci said.  

On the topic of bitcoin, which many analysts feel has hurt gold’s chance of a sustainable rally, Lanci agreed.

Bitcoin has hurt gold but for the wrong reasons – it has been sold or presented as a store of value – it is not, bitcoin is not money…yet. With the advent of futures it is now being sold as the new digital gold which is a disaster waiting to happen.”

So would Lanci sell bitcoin to buy gold?

“On a dollar for dollar basis it might not be a bad trade to short bitcoin futures and buy gold on a dollar for dollar trade, not contract for contract. I am looking at other cryptocurrencies, products like BitShares that are more decentralized and might be the next evolution,” he said.

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.