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Gold's Dip Below $1,300 Is Temporary - Analyst

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Gold’s Dip Below $1,300 Is Temporary — Analyst

(Kitco News) - There is no reason to fear gold’s drop below its key psychological level of $1,300 an ounce, according to one gold bull, who sees the recent sell-off as “short-lived” while projecting stronger demand for gold in 2019.

“Gold has come under marked downward pressure since February 20,” Metal Bulletin precious metals analyst Boris Mikanikrezai wrote in a Seeking Alpha post on Wednesday. “Expect the current consolidation in gold prices to prove short-lived. Investors need more gold to serenely navigate rocky waters this year.”

At the time of writing, spot gold on Kitco.com was trading at $1,286.60, up 0.11% on the day.

The analyst forecasts that increased equity volatility in 2019 will boost demand for gold in investors’ portfolios.

“Last year marked the start of rocky waters for U.S. and global equities, I expect more volatility in the course of 2019. This should eventually induce investors to position themselves more defensively, resulting in stronger haven demand and thus stronger gold ETF inflows,” Mikanikrezai said.

Another plus for gold this year is “the approaching end of the U.S. business cycle,” the analyst pointed out. “This should translate into stronger monetary demand for gold,” he said.

Other positive signs for gold include increased pace of gold purchases and slowing rate of short-covering, Mikanikrezai added, citing the latest Commitment of Traders report and ETF investors activity.

“The net spec length increased by 127 tonnes, moving from 326 tonnes (22% of open interest) on February 12 to 453 tonnes (29% of open interest) on February 19,” he said. “Looking forward, I expect the speculative gold’s spec positioning to move to an extremely bullish configuration … The significant wave of speculative buying in favour of Comex gold would exert marked upward pressure on Comex gold spot prices.”

In terms of future ETF outflows, Mikanikrezai wrote that there will be little point in increased selling in the future as the U.S.-China trade war is likely to be over.

“Liquidating gold due to a likely end of a US-China trade war does not sound like a very prudent move. This is especially true considering the technical nature of the rally in equities since year-start, which was initially triggered by a dovish turn by the Fed and reinforced by policy relaxations from China.”

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.