Is This The End Of Gold's Bear Market? Scotiabank Weighs In
(Kitco News) - Gold is looking to put its bear market behind it, according to a report by Scotiabank, which points to a pause in Federal Reserve’s rate hikes, investor positioning, and bullish technical momentum as offering long-term support.
“Gold shifted from being in a bull market (2009-2013) pricing in known Quantitative easing measure, to a bear market (2013-?), pricing in unknown quantitative tightening; It now needs to decipher how to trade a prolonged (indefinite?) pause,” wrote Scotiabank commodity strategist Nicky Shiels.
Gold has shown a break from its long-established pattern where prices weaken ahead of a rate hike and rise afterward.
“Gold has been trading rather bid INTO this past FOMC (which is unlike previous meetings, in which it weakened in the lead up to each Fed meeting and was bought after),” Shiels pointed out.
This is an interesting change considering that markets have been shifting expectations in terms of future rate hikes from four to zero in 2019.
“The Fed will most likely ‘confirm’ [that shift] at their March FOMC,” Shiels said. “When the Fed dovishly pauses, allowing the [dollar] to remain contained-to-lower, all real assets rise as they begin pricing in typical late-cycle plays.”
Aside from a more dovish Fed, investor positioning is looking to be more pro-gold as of late, with net shorts turning into net longs, the report said.
On top of that, the technical momentum is “mildly bullish” and that trend is holding well into the second month of the year, Shiels added.
“Structurally, hard-to-define long-term issues, which could be Gold-centric, are increasingly in the limelight and now are being cited as soft drivers of the recent rally,” the Scotiabank strategist said. “Themes such as U.S. & Global debt levels, political & trade standoffs/truces & gridlocks, backlashes over protectionism; the rise of MMT (Modern Monetary Theory) & rising taxes, inflationary policies, de-dollarization policies, and geopolitical re-alliances.”
At the end of the report, Shiels noted that the change from a bear to a bull market does not happen quickly.
“One needs to recognize that bull and bear markets take months (not weeks), and not one moment, to turn,” the strategist warned.