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Gold Rally Is Coming, ‘Expect Fresh Highs In Q2’ - Analyst

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Gold Rally Is Coming, ‘Expect Fresh Highs In Q2’ - Analyst

(Kitco News) - Be patient when it comes to gold, says one analyst, projecting a rally in the second quarter of 2018, led by strong physical demand and weaker U.S. dollar.

“The resilience of gold prices in spite of the substantial wave of speculative selling since mid-March (~71 tonnes, corresponding to a 17% drop in net long spec positions) is encouraging in so far as it suggests the presence of buying pressure elsewhere in the market (e.g. physical demand),” Boris Mikanikrezai, precious metals analyst at FastMarkets, wrote in a Seeking Alpha post on Monday.

Mikanikrezai is very optimistic when it comes to gold price outlook for the near term.

“ETF buying interest for gold is at its strongest since September 2017 … Once bullish speculative sentiment toward gold resumes, I expect a strong price reaction,” he said. “I have a long position in IAU (iShares Gold Trust), expecting a fresh 2018 high in Q2.”

The macroeconomic backdrop, which triggered some sudden price moves within the precious metals market recently, has also been pro-gold.

“I continue to see a weaker dollar and lower U.S. real rates in the coming months on the back of three main drivers,” Mikanikrezai wrote.

The Federal Reserve is the primary driver, according to the note, which projected “a dovish hiking cycle” in the next few months based on “FOMC’s patience to see inflation moving back first toward its target of 2%.”

Inflation is the second key element pushing the yellow metal higher, with price pressures estimated to increase, led by oil strength and tight labor market. And the third element for the bullion is the ballooning U.S. deficit in light of this year’s fiscal stimulus.

Mikanikrezai summed up that all of the above factors will continue to weigh on the U.S. dollar and boost gold prices.

The analyst added that gold’s temporary inability to break above its current trading range should not discourage gold bulls, adding that investors are always cautious when it comes to new geopolitical risks, including the recent U.S.-China trade war fears and the tensions in the Middle East.

“Should the situation continue to deteriorate, investors could be forced to price more accurately this geopolitical risk. This would exert even more downward pressure on the dollar and U.S. real rates,” Mikanikrezai pointed out.

Gold prices have proved resilient to a more risk-on appetite present within the marketplace this week, steadily trading above $1,340 an ounce.

As markets opened in Asia on Wednesday, spot gold on declined, last trading at $1,343.70, down 0.26% on the day, while June Comex gold futures were at $1,346.70, down 0.21% on the day.

Live 24 hours gold chart [Kitco Inc.]

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