Make Kitco Your Homepage

Gold price is not in bubble territory yet - FXTM

Kitco News

Editor's Note: Get caught up in minutes with our speedy summary of today's must-read news stories and expert opinions that moved the precious metals and financial markets. Sign up here!

(Kitco News) - The gold market has once again attracted the attention of the world as prices push to their highest level in history but the question a lot of people are asking is if the precious metal is in bubble territory?

Hussein Sayed, chief market strategist at FXTM, said that the gold market is seeing renewed momentum as a result of low interest rate and a weak U.S. dollar. He added that these are two factors that will continue to support gold prices at current levels.

Sayed said that it appears that the U.S. dollar has lost its king status” in the global currency market as the U.S. dollar index trades at its lowest level in two years.

Several factors are driving the Greenback lower, with real yields being the dominant factor as the Fed is likely to continue holding interest rates lower for a prolonged period of time.  For this same reason, Gold is today trading at a new record,” he said.

Although gold has hit an all-time high, Sayed said that prices adjusted for inflation are still nowhere near a record. Adjusted for inflation, the 1980 gold price peak at $835 is still the record holder. During that time inflation was in double-digit territory and U.S. 10-year treasury yields peaked at 16%.

Sayed said that inflation will continue to be the dominate factor to determine how far gold s rally goes. The U.K. firm continues to see potential for gold prices to push to $2,000 an ounce. In overnight trading action, August gold futures pushed to a high of $1,941.90 an ounce.

With inflation expectations returning to pre-Covid-19 levels, the issue becomes how long the Fed can afford to keep inflation running above target to support their employment mandate,” Sayed said. The longer they keep rates low and the higher inflation expectations go, the more likely we are to see gold benefiting, and I do not think this relationship will break any time soon.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.