Gold Is Poised To Rally; Expect Resistance at $1,400 - Bloomberg Intelligence
(Kitco News) - 2018 may see metals leading commodities, buoyed by strengthin gold, according to a Bloomberg Intelligence report.
The report said that the yellow metal, which has outperformedBitcoin since mid-December, 2017, is “coiled to move” and should testresistance levels of $1,400, unless key drivers reverse. “Off to a good startin 2018, indications are there’s more to come in precious metals,” said MikeMcGlone, senior Commodity Strategist at Bloomberg Intelligence.
Gold has climbed 8% since the Federal Reserve raised ratesin December, while Bitcoin has fallen more than 50% within the same period.McGlone’s target means gold has room to push 4% higher. April gold futures lasttraded at $1,346 an ounce, up 0.22% on the day.
The analyst at Bloomberg Intelligence cites a peaking U.S. dollar, recovering inflation, and mean reversion in depressed stock marketvolatility as primary factor helping gold.
“Increasing inflation and a declining dollar are strong goldsupports,” the report said. “A recovery in stock-market volatility would be anadditional pillar. Slight, inevitable mean reversion in the CBOE VolatilityIndex (VIX) from historic lows may have outsized repercussions.”
The foundations for gold’s key drivers can be seen insimilarities to historical precedents. The yellow metal is performing in asimilar macroeconomic backdrop experienced just prior to the new millennium,Bloomberg Intelligence stated, when inflation bottomed in a similar way to thecurrent environment.
“CPI bottomed in a similar way a few months later, but fromthe lowest level in half a century,” the report said, “The same velocitymeasure of the trade-weighted dollar peaked about a year ago at an 18-yearhigh. Historical mean-reversion risks leave little room for anything but a goldrally.”
On a technical basis, gold has been trading in its narrowest52-week range in 13 years; September 2005 was the last time that the yellow metals’Bollinger Bands were narrower. At that time, gold broke out from $400 an ounceand peaked six years later at $1,900.
“The Bloomberg Dollar Spot Index dip to a four-year lowindicates a revisit of $1,400 resistance,” the report said, “absent someunforeseen force, gold is poised to revisit resistance levels at the highs from2013-14.”
Gold’s recent price recovery has bolstered the gold ETFmarket, with total gold ETF holdings reaching their highest levels since May2013. “Steady gold ETF holdings indicate a wall of worry from rapidlyappreciating financial assets, supporting the metal,” the report added.
According to McGlone, gold may be riding on the back of alarger commodity bull market. “Relative to its primary drivers -- a decliningdollar, rising inflation, demand exceeding supply and expanding global economicgrowth -- the Bloomberg Commodity Spot Index's four-year high in January is onthe right path,” he said.
By David LinFor Kitco News
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