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Don't Expect A Major Bull Run In Gold For At Least A Year - CME Group

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(Kitco News) - Although gold prices have regained the critical psychological level of $1,200 an ounce, one market analyst does not think the gold market has enough momentum to move higher anytime soon.

Erik Norland executive director and senior economist of CME Group

In a commentary published Monday on Seeking Alpha, Erik Norland executive director and senior economist of CME Group, said that while there are bullish factors forming in the marketplace, gold could still be one to three years away from starting a new bull run in the marketplace.

In his commentary he noted there are two factors creating a tug of war within the U.S. dollar: tightening monetary policy and loosening fiscal policy. However, in the end, he said that he expects tighter monetary policy to win the day, which would be negative for gold.

“So long as the Fed keeps tightening, gold is more likely than not to remain under downward pressure. This will be especially true if the emerging market currency disruption broadens to include more countries, sending the dollar higher,” he said.

However, it’s not all doom and gloom for the gold market. Norland said there is a risk that the Fed overtightens and pushes the U.S. into a recession.

“Fed tightening has been a difficult experience for gold investors but each time the Fed hikes rates, it increases the likelihood of a downturn in the U.S. economy,” he pointed out. “For gold, it’s difficult to imagine what could be more bullish than a U.S. recession.”

In this scenario, Norland said that fiscal policy will be under greater scrutiny.

“When the economy goes into a recession, budget deficits typically explode, rising by 4% of GDP on average,” he said. “That could potentially explode the deficit from 4% of GDP currently to 8%. The combination of wider fiscal deficits and easing monetary policy would be toxic for the U.S. dollar and would likely be a godsend for gold investors.”

For Norland, the biggest wildcard for the U.S. economy and the gold market remains the trade dispute between the U.S. and China. He explained that there are bullish and bearish factors weighing on gold.

“If the U.S.-Sino trade dispute sparks a slowdown in Chinese growth, this could ultimately prove to be bearish for every commodity in the world save one: gold,” he said. “If Chinese growth slows, it may have to devalue its currency at some point.  The moment of devaluation, if and when it happens, will probably be bearish for gold.  However, the aftermath could be quite bullish.”

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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