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Friday’s Selloff Shakes Gold Out Of Its Doldrums

Kitco News

(Kitco News) - There is a silver lining to gold’s massive selloff Friday, which is that maybe the market has been shaken out of its doldrums, according to one currency analyst.

In a report released over the weekend, John Kicklighter, chief currency strategist noted that before gold’s nearly 2% drop Friday, activity in the metal was hovering at its lowest point since 2000. Looking forward, he said that gold could start to find new investor interest as a safe-haven asset.

“How much of the remarkable volatility that closed out gold's week Friday was the result of a motivated fundamental thrust from the bears versus a necessary balance to extreme quiet,” he asked in his report. “This is an infusion of volatility in the absence of any activity at all.”

Monday, the yellow metal is attracting some bargain hunters, following what was its worst one-day performance since May last week as prices dropped to their lowest level since late December, last week; August gold futures, last traded at $1,281 an ounce, up 0.20% on the day, and regaining critical support above a 2015 trend line.

While the move was definitively bearish, Kicklighter warned that the selloff doesn’t define the yellow metal’s long-term trend.

“It is a contrast in volatility -- an extreme contrast in volatility that is very fitting from the circumstances alone; it does not however, necessarily insinuate a break that has clear intent,” he said in the report.

Looking ahead, Kicklighter said that he sees potential for the yellow metal as it represents value as a safe-haven asset. He noted gold looks attractive compared to many traditional safe-haven currencies and traditional bonds have been devalued after years of central bank intervention.

“When you have a collection deprecation of the world’s FX benchmarks, the U.S. dollar, the euro, the yen, the pound and more that is trillions upon trillions of dollars or the equivalent of dollars into gold, that is where you are going to get most of your motivation into the precious metal,” he said.

As to what could spark a new move back into gold, Kicklighter said that the high valuation in equities represents the best opportunities to boost safe-haven flows.

“Is there greater potential for the S&P 500 as a baseline for risk trends to rise or fall?” he asked. “There is clearly a greater capacity for risk aversion, which for gold is a positive.”

Kicklighter also sees potential for gold to rally as global trade wars escalate, weigh on global growth, and add to an environment of geopolitical uncertainty.

“Trade wars are a great level of uncertainty in the global spectrum,” he said. “Trade wars promote a global diminished capacity for growth. This is a collective depreciation of all these global currencies and as an alternative to traditional currencies that is gold’s great capacity.”

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.

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