Gold Vs. Risk Assets: Precious Metal Just Beginning Its Recovery - Bloomberg Intelligence
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(Kitco News) - Gold prices are just starting their recovery versus risk assets, with additional stock-market volatility clearing the path to retest the $1,400 an ounce level, according to Bloomberg Intelligence (BI).
“Volatility mean reversion, which is historically just a matter of time, may put precious metals on a path to new highs,” BI senior commodity strategist Mike McGlone said in a June update.
The yellow metal is putting in higher lows, which is a sign that it is forming a stronger foundation and could hit higher levels this year, McGlone pointed out.
“Gold is building this year's price foundation above $1,260 an ounce, which indicates revisiting $1,400 resistance on the back of increasing stock-market volatility,” he said. “The significance of $1,260 -- the mean since the first Fed rate hike -- and likelihood of the CBOT S&P 500 Volatility Index (VIX) returning to its lifetime average near 19, support gold's foundation.”
The return of stock-market volatility is unavoidable and gold stands to benefit the most, the Bloomberg Intelligence report said.
“Gold's underperformance vs. the S&P 500 appears near an end. Our graphic depicts the per-ounce price of gold vs. the S&P 500 index in a clear downtrend since the end of 2016, but potentially bottoming. In 2H18, the near simultaneous low in gold vs. the stock market and the one-year-ahead Fed funds future occurred with the ratio reaching a 13-year low,” McGlone wrote. “Downside in gold vs. stocks is limited near good support and particularly with futures shifting to expectations of Fed easing.”
The yellow metal is still waiting for the U.S. dollar to peak, which will eliminate another headwind from the metal’s path to higher prices, the report added.
“Metals should be a primary beneficiary when the dollar peaks, based on past results. The trade-weighted broad dollar moving above last year's 16-year high, appears to be just marking time,” McGlone explained.
Gold is also looking better versus copper, base metals and crude oil, the commodity strategist noted, citing the U.S.-China trade tensions and stock-market volatility.
Gold prices were trading slightly lower on the day on Wednesday as markets awaited the Federal Reserve rate announcement in the afternoon. The quiet North American session is in contrast to Tuesday, when the yellow metal rallied, posting substantial gains. August Comex gold futures were last at $1,348.50 an ounce, down 0.16% on the day.