Gold To Regain 'Some Of Its Former Glory' When Consolidation Ends
“We still like the long-term [outlook for gold],” said Phil Flynn, senior market analyst with Price Futures Group. “We still think gold will regain some of its former glory. We think it will be resuming its upward trek.”
The most-active Comex April gold contract traded up to $1,331.10 an ounce last week, its strongest level since June and a 13% rise from the cycle low of $1,182.70 hit in August. So far this week, the contract has pulled back modestly, trading at $1,319 just before 11 a.m. EST.
“I expect this is just a little bit of retracement,” said Daniel Pavilonis, senior commodities broker with RJO Futures. He said he now looks for the metal to move higher after holding around the 50-day moving average, based on a continuous chart.
For much of 2018, Flynn said, gold was a “forgotten asset,” with enthusiasm curbed by a perception that the U.S. Federal Open Market Committee would be aggressive tightening monetary policy in order to ward off future inflation.
Then came repeated criticism of the Fed by President Donald Trump, followed by a late-year swoon in U.S. equities. Policymakers soon appeared to be shifting their posture, with Fed Chair Jerome Powell saying at one point that rates were nearing a “neutral” level. Then last week, the FOMC did not raise interest rates again and policymakers’ commentary was deemed dovish by the markets.
“Because the U.S. Federal Reserve obviously changed course a little bit and are going to be more data dependent, we could see gold become more attractive in the coming weeks,” Flynn said.
Another supportive factor is market concern over increasing sovereign debt in many nations, Flynn said. He also cited signs of a pickup in physical demand and said there is potential for volatility in financial markets due to ongoing trade negotiations.
If the U.S. and China do reach an agreement, Flynn added, this likely would boost gold as well.
“It will create kind of a commodity-buying frenzy on expectations that global [economic] growth will be a lot stronger than anticipated,” Flynn said. “It will also raise concerns about inflation down the road.”
Pavilonis also commented that traders and investors may start to look at gold as an inflation play.
“Now the Fed looks like it is going to back away [from more rate hikes],” Pavilonis said. “If that’s the case, because of the Fed’s fear of volatility in the stock market, inflation is going to be able to move higher. I think the inflation trade is buying gold and silver.”
There are also simmering geopolitical issues that could support gold, such as Venezuela.
“But these are smaller variables,” Pavilonis said. “I think going forward, we should see some type of inflation play. The premise is the Fed is going to be too scared to raise rates now.”