Friday's Selloff Shakes Gold Out Of Its Doldrums
(Kitco News)- There is a silver lining to gold’s massive selloff Friday,which is that maybe the market has been shaken out of its doldrums, accordingto one currency analyst.
In a report released over the weekend, John Kicklighter,chief currency strategist noted that before gold’s nearly 2% drop Friday,activity in the metal was hovering at its lowest point since 2000. Lookingforward, he said that gold could start to find new investor interest as asafe-haven asset.
“Howmuch of the remarkable volatility that closed out gold's week Friday was theresult of a motivated fundamental thrust from the bears versus a necessarybalance to extreme quiet,” he asked in his report. “This is an infusion of volatilityin the absence of any activity at all.”
Monday, the yellow metal is attracting some bargain hunters,following what was its worst one-day performance since May last week as pricesdropped to their lowest level since late December, last week; August goldfutures, last traded at $1,281 an ounce, up 0.20% on the day, and regainingcritical support above a 2015 trend line.
While the move was definitively bearish, Kicklighter warnedthat the selloff doesn’t define the yellow metal’s long-term trend.
“It is a contrast in volatility -- an extreme contrast involatility that is very fitting from the circumstances alone; it does nothowever, necessarily insinuate a break that has clear intent,” he said in thereport.
Looking ahead, Kicklighter said that he sees potential forthe yellow metal as it represents value as a safe-haven asset. He noted goldlooks attractive compared to many traditional safe-haven currencies andtraditional bonds have been devalued after years of central bank intervention.
“When you have a collection deprecation of the world’s FXbenchmarks, the U.S. dollar, the euro, the yen, the pound and more that istrillions upon trillions of dollars or the equivalent of dollars into gold, thatis where you are going to get most of your motivation into the precious metal,”he said.
As to what could spark a new move back into gold,Kicklighter said that the high valuation in equities represents the bestopportunities to boost safe-haven flows.
“Is there greater potential for the S&P 500 as abaseline for risk trends to rise or fall?” he asked. “There is clearly agreater capacity for risk aversion, which for gold is a positive.”
Kicklighter also sees potential for gold to rally as globaltrade wars escalate, weigh on global growth, and add to an environment ofgeopolitical uncertainty.
“Trade wars are a great level of uncertainty inthe global spectrum,” he said. “Trade wars promote a global diminished capacityfor growth. This is a collective depreciation of all these global currenciesand as an alternative to traditional currencies that is gold’s great capacity.”
By Neils ChristensenFor Kitco News
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