Gold prices have room to move higher in H2 – FXTM
The gold market has had an incredible first half of 2018 with prices rising 18.5% to their highest level since 2011. However, the precious metal still has a lot of potential to move higher in the second half of the year, according to one market analyst.
In an interview with Kitco News, Lukman Otunuga, senior market researcher at FXTM, said that gold has the potential to rally to $1,900 an ounce by the end of the year and hit all-time-highs by 2021.
“Gold's explosive appreciation with the past few days is simply the result of many macro drivers simply harmonizing,” he said.
Otunuga said that ongoing economic uncertainty surrounding the COVID-19 pandemic, low interest rates and a stock market correction are all factors he is watching that have the potential to push gold prices higher.
However, he added that the biggest factor to drive gold prices up by the end of the year is fiscal stimulus measures introduced by the U.S. government.
“This is one of the tools that we’ve been using to fight the coronavirus menace, but this is going to bite back because the heavy spending may widen the budget deficit. And this is probably a key risk that we may see hitting market sentiment, probably in the final quarter of 2020,” he said.
Evidence of the insatiable investment demand for gold can been seen in the marketplace as gold prices have been able to rally in the face of a record rally in equity markets.
Otunuga said that the rally in equities shows the growing disconnect between the markets and economic reality.
“The major driver behind these elevated gains in equity markets is the fact that central banks have enforced unprecedented measures. Those monetary policy bazookas and those handsome fiscal packages for governments are the key things that have kept the stock market value alive,” he said. “But if you want to really add color to this, imagine the equity markets like a child experiencing an overextended sugar rush. Eventually that sugar rush is going to fade and when that happens this could result in that steep correction.”
Also helping the gold market has been renewed selling pressure in the U.S. dollar. However, Otunuga said that renewed strength in the greenback should have limited impact on gold’s momentum.
“Overall, I still believe that gold is drumming up support from some other things, not necessarily a weaker dollar, with your politics, global growth concerns and overtly negative things weighing heavily on sentiment,” he said.