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Has gold found its mojo?

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(Kitco News) - Last month the gold market was knocked down pretty hard. The precious metal saw its worst monthly decline in nearly five years and its worst June in eight. So the question now is: with prices back above $1,800 an ounce, is the yellow metal back on its feet.

Although there is a strong positive sentiment in the marketplace, with 75% of analysts bullish in this week’s Kitco News Weekly Gold Survey, I am not convinced that gold is ready to take off, at least for now.

Some analysts are also raising concerns about the lackluster price action given all the tailwinds in the marketplace. This past week we saw real interest rates drop below -1% for the first time since April. The U.S. dollar appears to be hitting resistance below 93 points.

In central bank news, the European Central Bank said on Thursday that it is now targeting an average of 2% inflation over the medium term, which means they are going to let inflation rise and the economy run hot.

And finally, China on Friday cut interest rates and lowered reserve requirements for banks, unleashing around 1 trillion yuan back into the economy.

To put this into sports terms, the gold market had an empty net and still wasn’t able to score.

So with all this happening, gold can only get above $1,800 an ounce. I noted that a report from one analyst said that gold prices should be trading at $1,880 an ounce, just given where bond yields are trading.

Of course, some analysts have said that while gold isn’t reacting to the news now, that doesn’t mean it won’t. Analysts at Commerzbank said that the gold market is now a function of time, meaning that at some point, investors won’t be able to ignore the current economic environment for much longer.

So with some traders paying more attention to the upcoming vacations than the numbers on their screen, maybe the best thing to do is cut out all the noise and focus on the precious metal’s long-term potential.

Two reports from the World Gold Council caught my eye this week. The first one was investment flows into gold-backed exchange-traded funds in June. Last month was a terrible month for gold, but some investors used lower prices as a strategic buying opportunity. Despite a nearly 7% drop in June, global gold holdings in exchange increased by 2.9 tonnes. Granted, that isn’t much, but it indicates just how much support there is in the gold market.

The second report, which really highlights gold’s potential, was created from a months-long comprehensive survey conducted by Greenwich Associates. The firm contacted 500 institutional investors from around the world to talk about the gold market.

The highlight of the survey was one in five investors having an allocation to gold. Of those, 38% look to increase their allocation over the next three years.

However, the biggest number that jumped out at me was that 40% of non-gold investors look to buy the precious metal in the next three years. This is a major untapped market that is starting to see the benefits of holding some gold.

So let’s see what the future has in store for gold.

Have a great weekend.

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.