'Capitulate' If Gold Hits This Level - Analyst
(Kitco News) - The weak precious metals market has tested the patience and perseverance of many gold bulls this summer, with one long-standing yellow metal optimist now saying he will have to “capitulate” if gold hits $1,140 in August.
“In my trading book, I keep my bullish bet in gold on, but I stand ready to capitulate if gold prices close below $1,140 per oz by the end of August,” Metal Bulletin precious metals analyst Boris Mikanikrezai wrote in a Seeking Alpha post on Wednesday.
The yellow metal surprised the markets when it tumbled down below its key resistance level of $1,200 an ounce earlier this month, trading near 1.5-year lows. Since then, gold prices attempted to recover, but failed to sustain a momentum above $1,200 an ounce. December Comex gold futures last traded at $1,192.90, down 0.09% on the day.
Despite August’s weakness so far, Mikanikrezai’s long-term price projections remain upbeat.
“While my outlook for gold prices over the short term is still cloudy because my bullish thesis has been put under severe test since the start of the summer, I remain bullish over the longer term,” he said.
But, the near-term picture is far from sunny, with the latest geopolitical risk in the form of the Turkish currency crisis unable to bring gold’s safe-haven allure back.
“Paradoxically, the Turkish crisis has exerted downward pressure on gold prices, questioning the ‘haven’ status of gold. Taking a closer look, the lack of upside in the gold price makes total sense in the face of the crisis in Turkey,” Mikanikrezai wrote.
The problem for gold in this case is market’s perception that the crisis is a local one, the analyst aded.
“Only local investors may be induced to convert their risky assets into haven assets, like gold or, more often, the dollar. The sharp appreciation in the dollar and the brisk sell-off in gold suggest that international investors are not worried about a global crisis,” he wrote.
Mikanikrezai admits feeling discouraged this summer, with gold prices steadily declining since the spring.
“The accelerating weakness since April 2018 has put my bullish gold view under severe pressure. Nevertheless, my plan is crystal clear. I will keep my bullish bet in gold on as long as gold prices remain above this critical downtrend line on a monthly closing basis. A monthly close below the downtrend line - at $1,140 per oz in August - would force me to capitulate,” he reiterated.
“For short-term oriented market players, going long gold with a stop-loss slightly below $1,140 per oz could be an interesting trade, with a reward to risk ratio largely skewed in our favour,” Mikanikrezai added.