(Kitco News) - Gold’s significant December momentum waned last month as the precious metal saw a disappointing start to the year; however, one market analyst said that despite all the headwinds gold faces, the market is still in very good shape.
Seasonally, January is one of the best months for gold, and prices have seen an average monthly gain of more than 3% over the last ten years. However, last month, the market saw a decline of 0.2%. Gold prices continue to consolidate in a range, unable to hold consistent gains above $2,050 an ounce, and April Gold futures last traded at $2,047.10 an ounce, down 0.22% on the day.
However, in a recent interview with Kitco News, George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that although gold faces some significant headwinds, it remains well-positioned as it holds critical support above $2,000 an ounce.
Gold has managed to hold critical support even as the Federal Reserve has pushed back on expectations of aggressive easing this year. While the central bank continues to lay the groundwork for eventual rate cuts, the cycle is not expected to start in March, and the number of cuts could be fewer than the six markets have priced in.
Milling-Stanley said that in the last few weeks, gold investors have tempered their monetary policy expectations, but added that equity markets, with the S&P 500 hitting record, are too exuberant and this momentum could prove to be unsustainable.
“At some point, the stock market is going to have a pullback. I think that that is inevitable and gold is definitely going to benefit from that,” he said. “Gold is in a very good position here. I'm very happy that gold has managed to stay above the $2,000 an ounce level.”
Although gold is struggling to find momentum, Milling-Stanley said the market remains well supported. Quoting the latest data from the World Gold Council, Milling-Stanley noted that central bank demand and solid physical demand in over-the-counter (OTC) markets could keep gold prices well above $1,900 an ounce.
“As an investor, you have to ask yourself, why is the price going up when ETFs are still showing net redemptions this year? The gold price is doing just fine, and this is because some people have traded away from ETFs and into the over-the-counter markets. There's no question about that,” he said. “I think this demand doesn’t go away, and demand will only grow as investors finally realize what is going on.”
Although prices have struggled, Milling-Stanley noted there is still solid interest in gold, but many investors are sitting on the sidelines, waiting for a pullback before entering the market. However, he added that because of central bank and OTC demand, pullbacks have been shallower than expected.
Instead of focusing on gold’s struggles, Milling-Stanley said investors should focus on its momentum and upside potential.
“If you look around, there are a number of very sound reasons why gold should be going down. But it is holding very, very steady at a very high level. That counts as momentum,” he said. “And I expect we're likely to see even more of that. When you look at all the things that could wrong in the world and in financial markets, holding some gold makes sense and if you continue to wait for a pullback, you might miss your chance.”
“There's a whole bunch of reasons why I think gold is strong, and why I think it's going to get stronger.”