Gold to kick-off a bull market this year, $1,700 is resistance target - Bloomberg Intelligence
(Kitco News) The yellow metal remains this year's likely top performer based on a weaker China's economy and declining bond yields, Bloomberg Intelligence said in its February commodities update.
Precious metals have the best chance at price appreciation in the current macro environment, said Bloomberg Intelligence senior commodity strategist Mike McGlone.
"Precious metals remain the center of price appreciation, with declining bond yields. The enduring downtrend in Chinese economic-growth estimates [are] fed by the coronavirus and U.S. attention on trade deficits," McGlone wrote.
The economic impact of the coronavirus and the overall slowdown in China's economic growth boost McGlone's outlook on gold versus other commodities.
"As decelerating China GDP is a key piece of the macroeconomic puzzle, the coronavirus outbreak is yet another catalyst to further estimate reductions," he wrote. "Gold and precious metals will remain the primary appreciating commodities in 2020 … Chinese economic growth rates have been in decline for over a decade, and the U.S.'s intent to squash deficits (notably with the largest exporter) is a headwind for most trade-surplus countries," he wrote.
Gold's price recovery is still in its early days, McGlone pointed out, adding that gold is likely to enter into a nascent bull market this year.
"A resumption of the broad-commodity bear and nascent gold bull markets is likely in 2020. Unless the stock market rally velocity is sustained, we believe it's more likely that most commodity prices and interest rates will decrease, with gold the notable exception and tactical trading on the rise," he said.
The U.S.-China trade deal is unlikely to reverse the deceleration in Chinese and global economic growth, the Bloomberg Intelligence update added.
"Last year's plunge in China net exports to the U.S. -- the biggest drop in the database -- is unlikely to simply reverse with phase one of the U.S.-China trade deal. A primary headwind for U.S. grain exports is the elevated dollar," McGlone wrote.
The yellow metal's foundation has been firming with last year's Federal Reserve rate cuts and declining bond yields helping to build strength in the gold price.
What this means for the precious metal now is that the next strong resistance in the bull market will be $1,700, McGlone said.
"Gold end[ed] January at seven-year highs, surpassing the 2019 peak. The high of about $1,700 during the 2013 downturn provides an initial resistance target," the strategists said. "A bit of reversion to the mean in the S&P 500 would complete the puzzle of futures pricing for Federal Reserve easing this year, gold rallying and bond yields declining in the first month of 2020, in our view."