Because of fundamentals gold prices can only go up - FXTM
(Kitco News) - The gold market continues to consolidate in a narrowing range and according to one market analyst, there are growing technical signs that the precious metal is ready to break to the upside.
In an interview with Kitco News, Lukman Otunuga, senior research analyst at FXTM, said that it is difficult to be bearish on gold as strong fundamentals are in place to drive prices higher. He added that economic uncertainty surrounding the COVID-19 pandemic, geopolitical instability and growing risks in equity markets will continue to support safe-haven demand for gold. He also noted that rising inflation pressures is now another added strong pillar of support.
“The fact that the fed is allowing inflation to run above that 2% level means that interest rates are going to remain low for an extended period, which is good news for good, which tends to flourish in a low interest rate environment,” he said.
As to what could be the spark to ignite gold’s next rally, Otunuga, said that he is watching for a potential correction in the stock market. He explained that markets right now remain addicted to the central bank stimulus measures. However, despite all the liquidity being pumped into markets, Otunuga, said that at some point the reality of the economic situation will hit investors.
The comments come after the tech sector recently saw some strong selling pressure as a result the Nasdaq fell more than 10% from its all-time highs within a week.
“If risk aversion remains a key theme, this could benefit gold,” he said.
Another factor that will be bullish for gold is a weakening U.S. dollar. The Federal Reserve has led central banks in the amount of liquidity it has injected into markets and that is currently weighing on the U.S. dollar index, which is struggling to find strong momentum above 93 points.
Otunuga, said that in the near-term the euro has room to move higher in the U.S. dollar.
“I believe the upside [in the euro] is going to be limited in the medium to longer term, but short term, I think you were bullish: enjoyed the ride,” he said.
“The U.S. dollar just can’t catch a break as the global economy slows,” he added.