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Gold price needs more than geopolitical uncertainty to sustain 2020 rally - Saxo Bank

Kitco News

(Kitco News) - Once again geopolitical uncertainty has had a short-lived impact on the gold market but that doesn ’t mean investors should give up on the precious metal, according to one market analyst.

Ole Hansen, head of commodity strategy at Saxo Bank

In a telephone interview with Kitco News, Ole Hansen, head of commodity strategy at Saxo Bank, said that he could see gold prices falling to $1,500 and entering a new consolidation phase as prices have fallen sharply from Wednesday ’s multi-year high above $1,600 an ounce.

“Gold did in the first three days what it was supposed to do through the entire year,” he said. “We have seen this pattern before. While geopolitical uncertainty drives prices higher it doesn ’t lead to sustainable prices. The gold market needs a little bit more if this rally is going to be sustained.”

Hansen ’s comments come as gold prices traded at $1,548.80 an ounce, down nearly 4% from Wednesday ’s high.

Although gold prices could continue to remain under pressure through the first quarter of the new year, Hansen said that he looks for the long-term rally, which started in the early summer and will remain intact. He added that although investors will be watching critical support at $1,500 an ounce, the ultimately line in the sand comes in at $1,450 an ounce.

“If we can hold that level then gold remains in an uptrend,” he said. “The story for gold is still there but we have to get through this consolidation period first.”

Hansen said that there is enough geopolitical uncertainty like the questions surrounding the phase-one trade deal between the U.S. and China to create episodic volatility in the gold market. However, he added that its gold ’s negative correlation to real bond yields that will drive the new uptrend.

Hansen added that central banks are becoming too complacent on inflation threats and with the extremely loose monetary policy action, it wouldn ’t take a lot of inflation to push bond yields lower.

Hansen noted that the United Nations food agency reported Thursday that its global food price index rose to a five-year high in December to 181.7 points.

“We expect the inflation story to unfold throughout the year,” he said.

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