Gold price holds $2,000 as investors buy the dip
After pushing to a one-week high, gold prices briefly dipped below $2,000 late Tuesday morning, but investors were quick to jump in to buy at lower levels.
“This is just a sign of how strong demand is in the marketplace,” said Philip Streible, chief market strategist at Blue Line Futures. “There are just too many people waiting on the sidelines waiting to get long. Investor are trying to protect themselves from the impending rise in inflation.”
Helping gold’s demand outlook is a weaker U.S. dollar, which has been unable to find any traction as the U.S. dollar index trades at a two-year low. The index last traded at 92.32 points, down 0.5% on the day.
Daniel Pavilonis, senior commodities broker with RJO Futures, said that despite some selling pressure around initial resistance levels, gold’s momentum trade is still alive and well.
He added that along with a weaker U.S. dollar, the gold market is finding support from falling bond yields. The yield on U.S. 10-year bonds is currently trading at 66 basis points, down almost 3% on the day.
Pavilonis added that he doesn’t expect to see any significant recovery in the U.S. dollar or bond yields.
“We are in unprecedented territory here. You can’t ignore all the economic damage that has been done,” he said. “This environment is going to create a lot more demand for the metals.”
Looking at gold’s price action, Pavilonis said that it is only a matter of time before gold hits a fresh all-time high.
Pavilonis is not the only analyst looking for higher prices in the near-term. In note published Tuesday, analysts at UBS said that they see the potential for prices to push to $2,300 an ounce.
“With the Fed continuing to suppress nominal rates and inflation expectations rising, we maintain our end-year forecast of $2,000/oz,” the analysts said. “In the near-term, gold may move as high as $2,300/oz, particularly if geopolitical tensions rise.”
It was a relatively quiet day for economic news. The precious metals saw little reaction to better-than-expected housing construction data.
Housing starts increased 22.6% - the biggest gain since October 2016 - to a seasonally adjusted annual rate of 1.496 million units last month, the Commerce Department said on Tuesday. The data significantly beat expectations with consensus forecasts calling for a rate of 1.24 million units.
According to most economists, Wednesday will provide the most economic risk for markets as the Federal Reserve will release the minutes from its July monetary policy meeting.
“The market will be looking for clues on its next steps in terms of providing accommodation,” said Ole Hansen, head of commodity strategy at Saxo Bank in a note Tuesday.