Is gold price ready to test $1,800 amid this market 'mayhem'?
(Kitco News) Gold is seeing a stellar rally Wednesday, boosted by a bounce-back in stocks, oil, and increased geopolitical tensions. But is the metal ready to tackle its long-awaited $1,800 an ounce level?
June Comex gold futures were up 2.71% on the day Wednesday afternoon, trading at $1,733.50 an ounce.
Majority of analysts see the yellow metal heading to $1,800 and higher this year, but they are split on the timing of the move.
Weaker U.S. dollar, stronger equities, recovery in oil prices, and a rise in geopolitical tensions, including the recent North Korea and Iran headlines, can give gold a chance to test its recent highs that neared $1,800 an ounce last week, the analysts said.
“Gold can come back up and test the recent highs — at least test $1,800 … Yesterday, gold came down, tested $1,680 mark, which had been a consolidation area. It was more of a pause to refresh. Right now you're seeing some of the strength come out of the dollar weakness,” LaSalle Futures Group senior market strategist Charlie Nedoss told Kitco News on Wednesday. “As the equities trade higher and you see crude reflate a little bit here, that’s a prospect of inflation and it's just the inflation story with gold.”
The $1,800 level is “not far ahead” for gold, RBC Wealth Management managing director George Gero also said Wednesday.
One of the key drivers going forward will be the U.S. and other countries continuing to pass stimulus packages, which would encourage investors to keep seeking exposure to gold, Gero noted. “Gold prices are [an] economic and political barometer of our well-being, and investors are doing what central banks do --buy gold to shore up currencies,” he said.
Others see that coveted $1,800 level possible only in the summer. “The $1,800 level could still happen. Just in a few months from now, not a few weeks,” said SIA Wealth Management chief market strategist Colin Cieszynski. “Gold has had a pretty good run here and it could stabilize in the $1,650-$1,750 range in the near term, particularly with stock markets still rebounding and people cautiously going back into that. I wouldn’t be surprised if gold hit $1,800 later this year, perhaps in the summer.”
Some weakness in the U.S. dollar is helping gold on a daily basis but the overall trend higher is supported by some bigger trends that are still asserting themselves, Cieszynski said.
“The stock markets are bouncing back. We are seeing money coming back into gold generally. People are still defensive and still fearful. And the central banks are still stimulating like crazy. And I think that's keeping a tailwind behind gold,” he noted.
Another popular theory is that gold breaches $1,800 only once the economies begin to re-open and the inflation picture clarifies, said Gainesville Coins precious metals expert Everett Millman.
“$1,800 would be the next big key level. After then, we have the nominal all-time high right around $1,900,” Millman said. “We won't see those fundamentals come into effect until we get some kind of relief from the whole pandemic situation — if they lift some of these lockdown restrictions. When we get on the other side of coronavirus I certainly think that we could test those higher levels.”
The rise to the all-time high will be a gradual one, added Millman, explaining that we haven’t seen those high levels for more than seven years. “It will take time to digest that move higher once we get there,” he said.
Millman also warned of “noisy” intraday moves in gold due to so much “mayhem” in the broader markets, including the recent oil price collapse. “In the short term, just because of that disruption, we could see higher gold prices … [But] there are still going to be these episodes of margin calls and people liquidating their gold in order to get some liquidity in what are very chaotic markets right now,” he stated.