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Is A Shift Occurring In The Gold Market?

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(Kitco News) -Investors need to pay closer attention to gold as the precious metal is starting to push back against critical headwinds in the marketplace.

Wednesday, gold is holding on to gains after surging $18 higher in the previous session to push above the critical psychological level at $1,200 an ounce. Gold’s renewed strength comes in the face of record equity-market valuations, higher bond yields, continued strength in the U.S. dollar and positive economic data.

December gold futures last traded at $1,205.40 an ounce, down 0.12% on the day.


“We are starting to see a change in perception in gold,” said George Gero, managing director of RBC Wealth Management.

Gero added that gold could be rallying as other undervalued commodity prices start to rise. In particular, oil prices remain near a multi-year high. He explained that increasing commodity prices increase the threat of inflation.

“Because of rising commodity prices, investors are misspricing inflation risks and that will ultimately be positive for gold,” he said.

Analysts at the Hightower Report also see further potential for gold, especially as it appears that oil prices will continue to rise. They noted that gold relative to oil prices is at its cheapest level in almost four years. West Texas Intermediate crude last traded at $74.77 a barrel, down 0.58% on the day; however, oil prices are still up 1.5% since the start of the new trading month.

“We continue to suggest that a long-term low is in place in gold and silver, but more confirmation will be needed. Traders should continue to hold longer-dated bull call spreads in [both gold and silver],” the analysts said.

Along with rising inflation pressures because of higher commodity prices, Phillip Streible, senior market analyst at RJO Futures, said that investors could be moving into gold to take a more defensive position against a possible equity-market correction.

He noted that the Russell 2000 Index has dropped sharply since the start of the month.

“Small caps tend to lead markets up and down, so this the Russell could be sending a warning signal to other equity markets,” he said. “It makes sense that with large-cap equities at record highs for investors to take a time out and get a little more defensive.”

While, there is some optimism in the marketplace, analysts note that there still needs to be a significant shift in the U.S. dollar before gold can attract more investor interest.

Ilya Spivak , senior currency strategist at DailyFX.com said that technically gold has to push above $1,235 an ounce to neutralize its nearly six-month downtrend.

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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