Gold and silver's rallies are far from over, as market drivers remain firmly in place

(Kitco News) - After a wild week, it’s not surprising to see Friday’s price swings in the gold and silver market. I have wondered for a few days how long gold could keep up this unprecedented rally in record territory.

Gold prices saw an intra-day swing of $98; the market volatility is only behind the December blowoff top rally that pushed gold prices briefly above $2,150 an ounce. However, if we look at that price action in comparison, the market consolidated above $2,000 an ounce until its breakout rally last month.

This price action is a little different because nobody calls for a significant correction. After the December rally, many analysts expected prices to test support around $1,950 an ounce. In fact, many investors missed the initial March breakout because they were waiting for a bigger correction.

This anticipation for a pullback makes Friday’s price action exciting; analysts have noted that investors who missed the March rally will be anxious to buy on dips. The problem many investors face is trying to determine where their entry point will be. Gold is trading in record territory, so there are many support levels to watch.

According to some analysts, there is initial support at $2,350 an ounce, which is around an initial Fibonacci retracement level. The next level of support to watch would be around $2,285 an ounce, analysts have said. There are also some analysts have also noted that the market doesn’t have any firm support until the $2,150 level, which capped the December rally. All this to say, investors could see a bumpy consolidation period.

At the same time, trying to time the market could prove futile because the clear consensus in the marketplace is that this gold rally is far from over. Despite Friday’s selloff, gold is ending the week at another record price. June gold ended Friday at $2,360.20 an ounce.

This resilient strength comes as inflation remains stubbornly high, which could force the Federal Reserve to maintain its aggressive monetary policy longer than expected.

After the U.S. Consumer Price Index showed inflation in the last 12 months, rising 3.5%, markets aggressively priced out a Fed rate cut in June. At the same time, yields on 10-year U.S. note are trading near a five-month high of 4.5%.

Higher bond yields make holding gold, a nonyielding asset, more expensive. While that may be true, Kristina Hooper, Chief Investment Strategist at Invesco, said that investors don’t care about gold’s opportunity costs as they try to protect their capital.

Hooper said that gold remains attractive as a hedge against fiscal excess as debt explodes higher worldwide. She added that it's only a matter of time before gold prices increase. 

Famed economist David Rosenberg is even more bullish in his gold outlook, writing in a recent report: “Any well-diversified portfolio should contain gold, and, at present, we’d recommend an aggressive overweight. That will act as a hedge against geopolitical and fiscal risks, offer a safe harbor against a breakdown in the equity bull-run, and give positive exposure to the coming easing cycle and period of dollar weakness. Don’t be afraid to go in at current levels.”

The factors that drove gold to Friday’s high above $2,400 remain solidly in place. The latest data from the World Gold Council noted that central banks continued to buy gold in February, albeit the purchase pace has slowed.

At the same time, China continues to dominate the marketplace as the People’s Bank of China has increased its gold reserves for the 17th straight month.

Finally, let's not forget that many generalist investors have shunned gold, but with the growing uncertainty surging through financial markets, it could only be a matter of time before they once again embrace yellow metal as a safe-haven asset.

So that is it for this week. Have a great weekend.