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Gold remains an attractive long-term asset as short-term pessimism remains elevated - NDR's Tim Hayes
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(Kitco News) - The gold market has hit a wall as hotter-than-expected inflation Thursday is keeping prices below $1,900 an ounce. Looking through the near-term volatility, gold remains an attractive investment as prices remain in a long-term uptrend, according to one market analyst.
The gold market suffered significant damage last month, with the 50-day moving average crossed below the 200-day moving average, which is known as a "death cross." Selling momentum then pushed prices to a seven-month low, just above $1,800 an ounce.
In a recent interview with Kitco News, Tim Hayes, chief global investment strategist for Ned Davis Research, said that despite the technical breakdown, gold's 200-day moving average remains in an uptrend.
Although gold prices have bounced off last week's lows, momentum appears to be running out of steam as the Federal Reserve signals that it will maintain its restrictive monetary policy until inflation starts to trend back to its 2% target. December gold futures last traded at $1,882.90 an ounce, down 0.23% on the day.
"Our short-term gold model has gotten to the lowest levels it ever gets to, but the long-term model remains in a buy signal," said Hayes. "I put this all together and you don't want to fight the current trend right now. I've cut back to being neutral. I'm ready to go back to being bullish when I know bond yields have peaked and are coming back down. In that environment, gold's uptrend can reassert itself."
Hayes said that investors should keep an eye on gold because it could be on the cusp of a momentum shift as safe-haven demand starts to reassert itself. Hayes noted that according to his modeling, at last week's lows, pessimism in the gold market was the highest it has been all year.
He added that sentiment in the marketplace has priced in a lot of bad news for the precious metal.
"Yes, maybe, but the Federal Reserve won't be quick to cut interest rates as investors would like, but we are at the end of the tightening cycle. That is true for central banks globally. We are in a totally different place than we were last year. The worry now is how much economic weakness are we going to see as the Fed tries to get ahead of inflation; that will be positive for gold."
Along with growing economic and geopolitical uncertainty, Hayes said that gold investors will want to keep an eye on the growing debt and deficit in the U.S. Although the selloff in the U.S. bond market has been reasonably orderly, as markets adjust to the Federal Reserve's aggressive monetary policy, there are some concerns that yields can go higher as the market attracts fewer investors. Thursday, after data showed inflation remains stubbornly high, the U.S. Treasury Department said that its $20 billion 30-year bond auction attracted average demand.
Hayes said that gold could actually do well if bond yields start to move higher as supply outstrips demand.
"The 12-month total deficit is at $1.9 trillion dollars; it down a little bit from extreme levels, but that is still pretty excessive and will be negative for the U.S. dollar and positive for gold," he said.
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