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Gold analyst calls for this critical price level; gold stays suppressed as strong dollar 'weighs' down price - David Erfle

Kitco News

(Kitco News) - As gold falls below its support of $1,675, David Erfle, Founder of JuniorMinerJunky,com, said that a strong dollar is weighing down the precious metal. Gold and the U.S. dollar often move in opposing directions.

"The dollar has been the biggest weigher on the price of gold," he explained. "And of course, the Federal Reserve is continuing to raise interest rates."

Over the year, the U.S. Dollar Index (DXY) gained 14.3 percent as the Fed hiked its key interest rate by 225 basis points. The DXY is now near 110.

Erfle pointed to $1,675 being a key support level for gold, which has been "tested five times before."

"The previous five times it came down to test, we saw strong buying come in right away," he said. "That's not happening today."

Erfle spoke with David Lin, Anchor and Producer at Kitco News, at the Precious Metals Summit in Beaver Creek, Colorado.

The Fed and precious metals

Gold is not an inflation hedge, but rather "a hedge against stagflation" and "a hedge against investors losing faith in government and currencies," said Erfle.

"Investors still believe the Federal Reserve has a handle on things," he said. "I'm expecting a 75 basis point hike [at the Fed's next meeting]. If it's a 75 basis point hike, it could be a buy-the-news situation as far as the gold price is concerned."

He explained that after the next Fed meeting, gold could see more buying as investors "scoop up some cheap gold." Erfle said that gold's "fundamentals" are improving, pointing to rising political tension domestically.

"[The domestic political situation] is ripe for a trigger to spike the gold price, because the bearish side of the market is so overcrowded," he said.

Gold is 'undervalued' and could see 'aggressive move to the upside,' despite Fed rate hikes - Luke Alexander

Gold Mining

Erfle pointed to rising costs, combined with a "gold price going sideways," as a problem for gold miners' profit margins.

"We really haven't had inflation like this for forty years," he said. "The gold price needs to go higher… As far as exploration is concerned, [miners are] cutting down exploration programs."

However, he mentioned that miners have "a lot of cash" they can deploy.

"Even though the situation is very similar to late 2015, the fact that a lot of these companies have a lot of cash is different," he said. "I wouldn't want to be a company that's looking for cash right now."

To find out Erfle's stock picks, watch the video above.

Follow David Lin on Twitter: @davidlin_TV

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