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Gold Is Looking For A Touchdown: Where Is The New Low?

Kitco News

Gold Touchdown RBC

(Kitco News) - Analysts are puzzled at how stubborn gold prices have been, with the precious metal now touching below the $1,200 an ounce level on Monday. But, there is still hope for gold no matter how low it settles in the near-term, according to one RBC strategist.

“Trade wars and what’s happening in Turkey … is filtering through in a dollar-positive way. And it is overtaking the idea of safe-haven and what I think is a fundamentally justified level [for gold], which is probably a bit higher than we are right now,” RBC Capital Markets commodity strategist Christopher Louney told Kitco News on Monday.

Gold prices tumbled to fresh 1.5-year lows during North American session on Monday, with the December Comex gold futures touching the daily lows of $1,198.90 and then trading at $1,200.50, down 1.52% on the day. In comparison, the U.S. dollar index rallied to $96.43, up 0.18% on the day.

Louney said that gold is struggling at the $1,200 an ounce level and there is likely more pain ahead in the short-term due to the rising U.S. dollar, which has been in the driver’s seat since April.

“You have a strong dollar, continued buoyancy in equity markets, and people talking about a rate hike cycle. These three things together, in particular the dollar, is what’s holding gold down right now,” Louney explained.

So, the question on everyone’s minds is how low can gold go? To this, Louney says only time will tell as markets are currently looking for a catalyst that could move gold higher.

“The market is kind of scared-neutral right now. If you look at some of the sentiment surveys, you are seeing a widening amount of neutral views. I think people are waiting to see where this bottoms out,” Louney pointed out.

The break below $1,200 an ounce took many analysts by surprise, which means that they are likely to revise down their price forecasts. Capital Economics already did just that, lowering its year-end outlook for gold to $1,200 an ounce from $1,300. 

“It’s hard to pinpoint the fundamental level on the downside. If you asked me a few months ago, I would have said $1,200 was the level we are watching. We are in that landing period right now as far as to where gold can settle below $1,200,” Louney added.

The RBC strategists reiterated how consistently gold has been falling since April.

“We saw gold having a very strong start to the year and a lot of that occurred on the back of the weakening of the U.S. dollar index. And as the dollar recovered … after Q1, we essentially embarked on a straight line lower as far as gold prices are concerned.”

But, as fall approaches, there is good news for those who are playing the long-gold game, with Louney projecting a recovery back above $1,300 an ounce by the end of this year.

“I don’t think the story is necessary over for gold, but there are certainly some pain happening right now and in the near-term,” Louney stated. “But, I do think going into 2019, there is potential of over $1,300, at least recovery-wise. It’s just a matter of how and when we get there.”

It’s is all about finding the right driver to take gold higher, the strategist noted.

“When the catalyst arrives, it will get us to that point. That catalyst could be people actually moving into this safe-haven environment.”

One very reassuring sign is the record net-short positions revealed in the latest data compiled by the Commodity Futures Trading Commission. 

“Historic levels of net short positioning in managed money makes [gold] prime for a catalyst to move higher,” Louney noted.

Money managers increased their net-short position in gold futures to 66,116 contracts, compared to 42,528 the week before, according to the CFTC’s “disaggregated” report. The bulk of the increase was due to continued fresh selling, as reflected by an 18,857 increase in total shorts. There was also some long liquidation, as gross longs declined by 4,731 contracts.

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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