Gold's Technicals Are Looking Strong, Pointing To $1,480 In 2020 - Westpac
Editor's Note:Kitco News has the best precious metals coverage in the world and is in the process of improving its mining news, so we want to hear from you. If you work in the mining sector please take this short survey to help us bring you the news you want.
(Kitco News) - The technical set-up for gold is quite strong at the moment and even though prices won't break above $1,350 in the short-term, next year traders could see multi-year highs of $1,480, according to Westpac global head of market strategy Robert Rennie.
U.S. fiscal deterioration will be one of the leading drivers boosting gold towards the end of this and beginning of next year, Rennie told Kitco News.
“The potential for further deterioration in U.S. fiscal position is the factor that could undermine U.S. dollar as we look forward into next year. I can certainly construct a scenario whereby we see further strength in gold,” Rennie said. “If we start to see concerns around U.S. fiscal deterioration showing up in financial markets in Q1 next year then from a pure technical projection, a break above $1,380 would be suggestive of $1,480.”
Rennie used Fibonacci retracement to get to this level. “If I look at 2011 high through to 2015 low, what’s 38.2% retracement of that? Well that’s $1,380. I got a trend line at $1,350. So, those are my key levels. And if we break the 38.2, you are talking about 50% retracement, which comes in at $1,480,” he explained.
However, a break above $1,380 is not likely to happen this spring or even this summer, Rennie said, adding that despite increased interest from central banks, a more balanced short-term view makes more sense.
“The bottom line is that I am not that optimistic in the near term. It is difficult for us to break through $1,350-$1,380,” he noted.
Yet, as the year goes on, fresh multi-year highs will become more probable. “Shifts in terms of guidance from Fed chair Powell and the FOMC led to a shift in our expectations for the Fed and therefore for the U.S. dollar as well,” Rennie stated.
Westpac’s head of market strategy projected a deterioration of U.S. fiscal position throughout next year, citing U.S. presidential election.
“The U.S. presidential election could impact expectations — as you see the Democrats are shifting further left so to speak — new green deals, free medicare for all,” Rennie said, noting that it could negatively impact the debt ceiling.