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(Kitco News) - The gold market has shown resilience with prices holding critical support around $1,950 an ounce even as the Federal Reserve is expected to maintain a tight grip on its monetary policy; however, despite the relative buoyancy in the marketplace, one strategist said that now is not the time.
In an interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, said that while she remains bullish on gold in the long term, now is not the time to buy.
She explained that gold is entering a traditionally weak seasonal period that could weigh on prices, and she expects that gold will have one more correction before it starts its rally to all-time highs.
"If we break below support at $1,950, we could see prices fall significantly lower," she said. "There is not much holding up the market before $1,880. It's a big air gap lower. If you are bullish and you want to start building a position now, you should only nibble at the market, not load up."
She added that gold's 200-day moving average of $1,880 represents a significant support level.
Garner said that investors looking to play the market might want to buy weekly options. However, she said that she wouldn't look to buy gold until at least late July or even early September, depending on where prices are.
Although Garner expects to see gold fall lower in the short term, she added that she is not actively shorting the market. She said that elevated levels of market uncertainty continue to provide some support for the precious metal.
"I would rather be a little bit late to the gold rally than be caught short," she said.
As to what would shift her near-term sentiment in gold, Garner said that she would need to see a clear break above $2,000 an ounce.
"Unless we get a break above that resistance level, gravity will take hold of the price," she said.
Garner is also short-term bearish on silver. She said she expects one more selloff before a long-term rally.
"I think we need to see some weak longs shaken out of silver before we see a sustainable move higher. I think prices could fall to $20 an ounce before they move back to $30," she said.
Along with seasonal factors, Garner said that the Federal Reserve's monetary policy stance continues to keep investors out of the gold market. Although markets are priced in for the central bank to hold interest rates unchanged next week, there are still expectations that rates will go higher before the summer is done.
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However, a growing chorus of analysts and economists have said that further economic weakness will keep the Federal Reserve on the sidelines in July as well.
"I hope that the Fed is done raising interest rates," she said. "They have a habit of becoming fixated on one idea. They want to see inflation down to 2%, but I think that is going to get them in trouble. They should look at a target of 3% for now and go from there."
Despite her growing concerns, Garner said that if the Federal Reserve can pull back on the monetary policy reins, it would support sluggish economic growth through the rest of the year, avoiding a recession. She said that in this environment, the asset she is watching is copper.
Along with fears of a U.S. recession, copper has also been held back this year by volatile economic activity in China; however, Garner said that she expects the base metal to have priced in that weakness.
"I like copper on the upside. The price is holding $3.50, which is a critical trend line. There is potential for copper prices to push to $4.50," she said.
