(Kitco News) - With its move above $2,500, the gold market continues to defy expectations, and one market analyst believes the precious metal still has room to grow.
In his latest report, Florian Grummes, Managing Director at Midas Touch Consulting, noted that gold’s move last week to a new record high hit his November 2023 price target. He added that the breakout above $2,500 could signal a clear trend phase.
He pointed out that gold’s relatively orderly uptrend strongly indicates that prices can continue to rise. Grummes’ outlook comes as gold prices consolidate their recent gains at elevated levels. December gold futures last traded at $2,551.70 an ounce, down 0.14% on the day.
“Overall, the weekly chart is bullish and suggests higher gold prices in the coming weeks, despite negative divergences. The fact that the rally, which started on October 6, 2023, has not yet had an overshooting finale suggests there might still be significant upward potential,” he said. “Typically, months-long upward movements in the gold market have almost always ended with a vertical overshoot, where the gold price could achieve enormous increases in a short time. This was always followed by a brutal crash, where all gains from the final exaggeration phase were quickly lost.”
If gold enters a euphoric stage, Grummes said he would not be surprised if prices temporarily push to $2,700 an ounce. However, in the near term, he is looking for prices to test support between $2,485 and $2,430 an ounce.
Although Grummes remains bullish on gold, he said the market is not without risks, as bullish positioning in futures markets is becoming a little overcrowded.
Last week, data from the Commodity Futures Trading Commission showed gold’s net length at its highest level since 2020, when the Federal Reserve surprised the market with an emergency 50-basis point cut as the global economy was just starting to feel the effects of the COVID-19 pandemic.
“The current positioning of professional actors in the paper gold market remains extremely unhealthy, as professionals evidently see a high need for hedging,” he said. “Overall, the current CoT report remains very negative and clearly bearish. It would require significantly lower gold prices before this analytical component could be interpreted as neutral or even counter-cyclically bullish.”
At the same time, Grummes also noted that gold is entering a seasonally bearish period. He explained that in the last 15 years, gold has seen significant selling in September.
“The next sensible and favorable buying opportunity might not arise until the end of September, early October, or even mid-December,” he said.
Grummes advised that in the short term, investors should keep an eye on gold’s momentum indicators.
“In the short term, we suggest keeping an eye on the stochastic oscillator on the daily chart. If both lines continue to stay above 80 by Friday evening, the super bullish embedded status remains in place, and the path higher is very likely to continue next week and thereafter. On the other hand, if the oscillator loses this favorable rate-setting, it might be very likely that gold has found a short-term top at USD 2,531.”
However, looking past the short-term volatility, Grummes emphasized that gold has established itself as an important asset in a diversified portfolio.
“Long-term, gold has confirmed its role as a store of value and inflation hedge for millennia, as it retains its value in contrast to fiat currencies, which constantly lose purchasing power,” he said. “Despite short-term fluctuations, gold remains a reliable indicator of long-term monetary depreciation. The constant value of the precious metal makes it a preferred investment in times of economic uncertainty and political crises, as it does not depend on the credibility of an issuer (e.g., central bank) like fiat currencies do.”
