(Kitco News) - The gold market has recovered most of its ground after Friday’s sharp selloff, and while the precious metal is expected to see further volatility in the short term, one investment firm believes its long-term uptrend remains firmly in place.
In his latest research note, Adam Turnquist, Chief Technical Strategist for LPL Financial, said that in the near term, gold looks overbought and vulnerable to renewed selling pressure that could push prices back to support near $2,800 an ounce. However, he added that in the long term, even as it pushes to $3,000, the precious metal is still relatively cheap.
“On a relative basis, when we step back and compare gold to the S&P 500 over the last 30 years, bullion still appears cheap to the broader market,” he said in his note. “This ratio chart — used to define relative trend strength and direction — has started to form a potential bottom and is back above a rising 12-month moving average. While we are not advocating for investors to rotate from equity markets to gold, we do reiterate our positive view on precious metals, a view we have held since last spring.”
Turnquist said that a weaker U.S. dollar should also support gold. Although the U.S. dollar index is trading around 107 points, it remains down from last month’s multi-year high.
“Last week’s breakdown in the dollar could be another tailwind for gold and the broader commodities complex,” he said.
At the same time, Turnquist pointed out that gold continues to benefit from the economic and geopolitical uncertainty created by President Donald Trump’s tariffs on steel and aluminum and his threat to impose more tariffs on other imported goods.
Turnquist noted that these trade policies are driving up inflation and creating headwinds for equity markets.
“While the newly announced 25% tariffs on aluminum and steel imports may have minimal impact on inflation or domestic growth (the metals only accounted for around 1.8% of total goods imported into the U.S. last year, per S&P Global), they could have detrimental knock-on effects for downstream applications such as autos, manufacturing, and the building and construction space,” Turnquist said in the note. “These added costs can show up via reduced profit margins if the company absorbs the increased cost, or they get passed down to the end consumer via higher prices.”
Turnquist said he is also bullish on gold as central banks increase their exposure to the precious metal to diversify away from the U.S. dollar.
“Adding gold and reducing dollars has been a growing theme among global central banks,” he said. “In 2024, 81% of central bankers indicated they would increase their gold reserves over the next 12 months, with only 19% indicating they would leave their gold reserves unchanged. Furthermore, 62% reported they would lower their dollar reserves over the next five years.”
