(Kitco News) - The gold market’s months-long consolidation has frustrated many investors, but for anyone who has been waiting to jump in, now could be the time, according to one market strategist.
In an interview with Kitco News on Aug. 28, Michele Schneider, Chief Strategist at MarketGauge.com, said there is no telling how high gold prices can go. She was looking for an imminent break above $3,500 an ounce last week.
“We have been waiting for a spark to ignite gold, and when we look back, we will see that this was the time,” she said. “From a technical perspective, the longer a consolidation phase persists, the stronger the breakout move is likely to be. I would say $3,800 to $4,000 is extremely practical, without getting too hyperbolic. That would probably be my next legitimate target before we might see some profit-taking. Even at these prices, investors have not missed the boat. When investors start buying the strength – buying on these important breakouts – that's when parabolic moves happen.”
Spot gold last traded at $3,526.20 an ounce, up 1.5% on the day.
Not only has gold achieved a new all-time high, but Schneider said she was looking for solid follow-through momentum after last week’s sharp rally. Gold prices saw their best weekly close on record last Friday.
Schneider explained that gold’s new momentum comes as the Federal Reserve signals a shift in its monetary policy, highlighted in Federal Reserve Chair Jerome Powell’s recent speech at the central bank’s annual symposium in Jackson Hole. In his comments, Powell said that a shifting balance of risks in the economy may warrant an adjustment in monetary policy.
“Powell showed markets that he is not overly concerned with getting inflation back down to 2%,” she said. “He is now more focused on the slowdown in the economy and the labor market.”
Schneider said that the Federal Reserve’s shift away from inflation is adding to growing concerns about the U.S. dollar’s purchasing power. She pointed out that global investors and sovereign nations appear to be losing faith in the U.S. dollar and turning to gold, renewing its role as a world currency.
“ What we're seeing is that there's just a general lack of faith that the Fed is going to do what it needs to do, that the government knows what it's doing,” she said. “ There's this flight into gold because there are worries all over the place about fiat currency.”
While gold is seeing solid momentum and is currently trading near its session highs, silver has been more volatile and has attracted some profit-taking. Spot silver last traded at $40.71 an ounce, down 1% on the day.
Despite the volatility, Schneider said silver remains an attractive investment and she expects it to continue outperforming gold through year-end. She said the key to the gray metal is the gold/silver ratio, which is holding initial support above 86 points.
Looking ahead, Schneider said she expects the ratio to drop below 80 points, which could send silver prices to $50 an ounce and new all-time highs.
Schneider said she remains bullish on the metal as it has become a critical element in the global energy transition.
“ Silver on a relative basis now is just cheap,” she said. “ Think you're going to see $50 really easily. So not only do you have gold running, but you still have silver undervalued to gold.”
