(Kitco News) - If you want to know where gold is headed, you should be paying attention to sugar, according to one market strategist.
In a recent interview with Kitco News, Michele Schneider, Chief Strategist at Marketgauge, noted that sugar is forming a classic technical bull flag pattern. She added that if resistance levels break, prices could easily return to 28 cents a pound.
Although gold and sugar aren’t highly correlated assets, Schneider explained that higher sugar prices will eventually lead to higher food prices, keeping inflation elevated, which would support gold.
Schneider said that due to geopolitical uncertainty and growing production risks from climate change, even a small disruption in the global food supply chain could drive food prices and inflation higher in 2025.
She added that uncertainty over the global economy's health and inflation are just two factors supporting gold. The precious metal continues to consolidate at elevated levels, even as the U.S. dollar remains relatively strong and bond yields hover near a three-month high above 4.2%.
“If yields are up because the economy is so great, why does gold continue to be bought?” she asked. “Are you going to believe U.S. Treasuries or gold? Personally, I’m going to believe in gold. If commodities like sugar continue to rise, we’re nowhere near done with inflation. I think we’re seeing just a short-term pause in inflation before it picks up again.”
The growing debt problem in the U.S. is another reason why Schneider sees gold as a better reflection of the U.S. economy’s health than Treasuries. She noted that major investors like Stanley Druckenmiller and Paul Tudor Jones have recently expressed bearish views on bonds, which would support higher yields.
Schneider said that consumer demand will be a key factor in determining the direction of the U.S. economy. She has been watching the SPDR S&P Retail ETF (NYSE: XRT), which tracks the S&P Retail Select Industry Index. She suggested this could help explain why gold remains strong, as the ETF’s directionlessness adds to market uncertainty. Throughout most of this year, the XRT has been trading within a tight range between $70 and $80.
“I look at this and can see that the consumer is still in pretty good shape, but they’re not driving the economy,” she said. “This could be the one risk for gold. If XRT breaks above $80, it would indicate that the consumer is in strong shape, which could signal a top for gold.”
On the other hand, Schneider said that if XRT breaks below $70, it could signal that the U.S. is headed toward a recession. While a recession initially impacts gold negatively, weak growth would likely prompt the Federal Reserve to lower interest rates aggressively, even if inflation remains elevated.
“This would be the perfect environment for gold,” she said.
As uncertainty continues to dominate the marketplace, Schneider said she is comfortable holding between 15% and 20% of her portfolio in gold. She added that she also holds some silver, as there’s still considerable value in that precious metal.
Regarding price action, Schneider said that for gold, a solid close above $2,760 an ounce would put $2,800 back into play, and then the focus would shift to $3,000.
Looking at silver, Schneider said she would like to see the precious metal push back above $33 an ounce and hold that support. She added that a solid break above $35, last month’s 12-year high, would bring $50 into play.
