Gold Is Ready For A Rally, With This Analyst Eyeing $1,455
(Kitco News) - Gold’s substantial drop to below its key psychological level of $1,300 an ounce could be a sign that the precious metal is gearing up for a rally in the next few weeks, according to one analyst.
“Gold is at or close to a low here that is likely to set off a rally to $1,360 or higher in the coming weeks,” Global Pro Traders CEO David Brady said in a Sprott Money’s post published on Wednesday.
After dropping down more than 2% on Tuesday, gold ticked up slightly, with June Comex gold futures last trading at $1,292, up 0.13% on the day.
Brady sees strong short-term gold support at $1,270 an ounce, stating that the yellow metal will not fall below that level.
Positioning is one of the key metrics Brady uses to back up his outlook.
“The positioning of the Money Managers, or “Funds”, in the Gold futures market is at extremes that have typically led to massive rallies in Gold,” he wrote. “At 39k contracts on Tuesday last, this was one of their lowest net long positions since Jan 2017. It clearly indicates a high probability of a significant rally from here.”
Brady pointed out that the upcoming price jump could be as big as 13%. “At the close of $1,288 on Tuesday, this would mean a rally to somewhere between $1,378 to $1,455,” he said.
Another sign pointing to a gold rally is sentiment, which Brady describes as a “contrarían tool.”
“When everyone is bullish, that is typically the best time to sell, and when everyone is bearish, [that is] the best time to buy,” he noted.
In his outlook, Brady prefers to use Daily Sentiment Index (DSI), which is set a “extreme bearishness” at the moment, which tells him to be “counter-intuitively bullish” when it comes to the precious metal.
Brady also does not view the U.S. dollar rally as a long-term trend, adding that any move down in the greenback will support the yellow metal.
“[The U.S. dollar index] has staged a strong rally off its low in Feb but is extreme overbought now … This does not mean it has peaked, but it does indicate that at least a short-term top is close,” Brady wrote.
At the time of writing, the U.S. dollar index was trading near 2018 highs at 93.28, up 0.08% on the day.