Gold's bull market has legs to run higher compared to 2011 - Perth Mint
(Kitco News) - While gold has fallen from its recent highs above $2,000 an ounce, the precious metal has held critical support in an elevated consolidation range. And even though gold could see more volatility in the near term, Jordan Eliseo, manager for listed products and investment research at the Perth Mint, said the market remains healthy.
In a commentary published Tuesday, Eliseo acknowledged fears that gold could see similar price action to 2011 when prices first hit a record high. He noted that gold's initial record set nearly 11 years ago ended a 10-year bull market as prices fell 45% from their highs.
However, Eliseo noted several differences between gold's latest push above $2,000 and 2011. A significant difference between now and then is that market is not as oversold, he said.
Eliseo noted that gold is only about 7% above its 200-day moving average. In 2011, the price was 27% above its 200-day moving average.
"Gold was clearly overbought in 2011 and due for a meaningful correction, which it subsequently endured," he said.
Another bullish factor for gold can also be seen in the yield curve. Eliseo noted that 11 years ago, the spread between 2-year and 10-year bond was relatively stable, around 2%. Last month, the spread was 39 basis points and had dropped sharply in the last year, he said.
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Another factor Eliseo is watching is the relationship between gold and equities. He explained that in 2011 gold significantly outperformed equities. He added that overvalued.
"Relative to equities, gold was expensive in 2011. Today it looks cheap," he said. "Put simply, equity returns are likely to be lower, while equity market volatility is likely to be higher in the years ahead, relative to the decade past.
Inflation is also significantly higher now than it was 11 years ago. Eliseo said that annual inflation in September 2011 was 3.9%. Last month, the Consumer Price Index showed an annual increase of 7.9%.
"While there was plenty of talk about inflation in 2011, in part fuelled by gold's strong run that year, there was little in the way of meaningful inflationary pressure evident in markets," he said. "It is significantly more problematic today."
While the Perth Mint is bullish on gold, many analysts note that the precious metal could face some difficult near-term headlines as the Federal Reserve raises interest rates.