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Gold bounces back

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(Kitco News) - The gold market is back in the race as prices have seen a strong bounce from November's dismal price action. At the beginning of the week, the precious metal was trading at a four-month low, and now investors are seeing prices trade at a one-week high, heading into the weekend.

Although sentiment has dramatically shifted this past week, we aren't out of the woods just yet. As gold prices started to move higher, Kitco News' Anna Golubova asked an important question: Is this a breakout for gold price or just an oversold rally?

She noted that some analysts expect to see higher prices through to year-end; however, the market first needs to get over critical resistance at $1,850 an ounce. This proved to be a strong resistance point Friday.

Although some analysts are looking for gold to push back to $1,900 an ounce on the back of this week's reversal, the question remains what can drive prices back to all-time highs. Investment demand remains the critical pillar of strength for the gold market.

Commerzbank commodity analysts noted in a report this week that 100 tonnes of gold flowed out of exchange-traded funds. November saw the biggest outflows in gold in four years.

"ETF investors have thus become a negative factor for the gold price after their purchases had previously driven up the price between April and August," said the bank's analysts.

However, many analysts are looking past the precious metal's near-term volatility and focusing on the long-term trend that governments and central banks will continue to pump liquidity into financial markets to try to stabilize and revive the global economy that has been devastated by the COVID-19 pandemic.

In an interview I did with Tom Winmill, portfolio manager at Midas Funds, he said that the only way governments will be able to deal with all the debt from this money printing is through inflation. He noted that even if the global economy grows 5% next year, it's still not enough to offset the amount of debt created to fight the pandemic.

"If you want to try to preserve capital, gold has historically been a good way to do that," he said.

But it's not just gold that benefits from all this money printing. Analysts note that bitcoin is now being seen as an alternative asset to offset U.S. dollar weakness. At the start of the week, bitcoin rallied to a record high above $19,900 a token, according to aggregated charts on Kitco.com.

Charlie Morris, chief investment officer at ByteTree Asset Management, said that if you want to know where gold is heading, just look at bitcoin.

So that is it for this week. And just before I sign off, I wanted to highlight that while vaccines offer us hope for the future, we still need to take precautions today. According to Reuters, a record 2,861 deaths were reported in the U.S. on Thursday.

I know it is difficult, especially with the Christmas holidays approaching, but we need to avoid social gatherings and take the proper precautions like wearing masks, washing hands, and practice social distancing.

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.