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Higher Inflation Will Drive Gold Out Of Its Rut - ING

Kitco News

(Kitco News) - Gold’s inability to break through critical resistance is frustrating many investors, but one Dutch bank continues to see potential for the yellow metal.

In a report Monday, Oliver Nugent, commodity strategist at ING, said that he thinks it’s only a matter of time before gold prices push past $1,400 an ounce as markets are underpricing rising inflation risks.

While the Federal Reserve is expected to continue raising interest rates this year, forecasting two more rate hikes, Nugent said that the central bank will remain behind the inflation curve, which would keep real interest rates low, supporting gold prices.

“Our economists expect inflation prints to remain high and nudge closer to 3% into summer now that a distortion from cell phone data pricing drops out of annual comparisons, as well as support from a weaker dollar,” he said. “Each positive data print will tempt gold closer to its higher range.”

For Nugent, the key level investors need to keep an eye on is $1,350 as this is proving to be the metal’s biggest hurdle. He added that there are a lot of investors sitting on the sidelines waiting for prices to break out. June Comex gold futures last traded at $1,345.60 an ounce, down 0.36% on the day.

“The market is increasingly skewed to the upside but it will need to be nudged into taking outright positions through an initial breakout in prices,” he said.

Along with higher inflation, ING is also bullish on gold as analysts see market volatility rising because of ongoing geopolitical turmoil.

The Dutch bank is not just bullish on gold. Nugent said that he also sees potential for silver prices as the gold/silver ratio is too high. Kitco.com shows the ratio currently trading at 80.36 points. May silver futures last traded at $16.74 an ounce, up 0.38% on the day.

While the market has an abundant, liquid above-ground supply, Nugent said that bearish positioning in silver is unstainable.

“This leaves the market extremely vulnerable to short covering although time could be running out,” he said. “A sharp gold-silver ratio reversal will likely take gold’s initial uplift to squeeze out the silver shorts before the funds show further fatigue.”

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.