Gold A Long Term Buy But Expect Lackluster Prices In The Short Term - Analysts
(Kitco News) - While the gold market may have less room to move on the downside, investors shouldn’t expect any significant rebound in the price until at least the end of the year, according to some analysts.
The comments come as gold prices continue to struggle to find momentum, weighed down by a stronger U.S. dollar. August gold futures last traded at $1,256.30 an ounce, down 0.26% on the day. Many analysts have voiced some disappointment that gold was not to hold near Monday’s nearly two-week high.
Silver is also struggling with the market in solidly negative territory. September silver futures last traded at $16.095 an ounce, down 0.27% on the day.
Analysts have noted that precious metals market has struggled in the face of a stronger U.S. dollar, which has bounced off Monday’s nearly one-month low. The U.S. Dollar Index last traded at 94.2 points, up 0.14% on the day.
“For the moment gold is off the radar as investors continue to jump into equity markets, chasing short-term gains,” said George Gero, managing director at RBC Wealth Management.
Gero added that not only is the U.S. dollar benefit from hawkish monetary policy in the U.S. but foreign investors are also buying U.S. dollars en mass to invest in red-hot U.S. equities.
While the gold market could see lackluster price action in the near-term as investors ignore the growing threat of a global trade war, Gero added that the market looks attractive in the long-term.
“The tariffs are a short-term negative for commodities and gold because the U.S. economy has good momentum right now. But in the long run, higher tariffs will cause the economy to shrink and inflation to rise. That’s a double whammy for consumers and that is when gold will do well,” said Gero.
David Madden, market analyst at CMC Markets said that it is difficult to get excited about gold until prices are at least above $1,284 an ounce.
“The charts are telling me that gold is still in a downtrend,” he said. “Even if the selling has slowed, I’m not overly optimistic that the bottom is in.”
Madden added that it will be difficult for gold to push higher in the near-term as the Federal Reserve continues to talk about raising interest rates two more times this year. He noted that the economic data also support the central bank’s hawkish monetary policy outlook.
While the trade wars are expected to have a long-term positive impact on gold, Madden said the effects won’t be felt for a while because there is so much momentum in the U.S. economy.
“I think for gold to really look attractive we need to see some important economic indicators take a hit. We need to see lower consumer confidence, slowing manufacturing output and weaker retail sales,” he said.
The economic calendar is relatively light with Producer Price Index to be released Wednesday and Consumer Price Index to be published Thursday. Madden said that this data might not have much impact on gold prices because there is already a growing expectation that inflation will rise this year.
Gold is also not seeing much lift from rising oil prices, which are trading near its recent multi-year highs.
“Precious metals bulls are somewhat frustrated that the rally in crude oil market recently has not spilled over into much support for the metals. In years past, rallying oil prices have pulled other raw commodity markets higher,” said Jim Wyckoff, senior technical analyst at Kitco.com.