Gold price at a two-month high but $1,835 is the major test - Saxo Bank
(Kitco News) -The gold market has found some new life as investors reactto growing inflation pressures; however, one market analyst said that goldstill needs to break through a critical level for momentum to pick up further.
In a telephone with Kitco News, Ole Hansen, head ofcommodity strategy at Saxo Bank, said that last week gold made some impressivegains. The market has seen some follow-through buying Monday; December goldfutures last traded at $1,824 an ounce, up 0.40% on the day.
However, Hansen said that the market still needs to pushabove $1,835 before the market sees new capital inflows. He added that $1,835represents a significant resistance point in the current downtrend from theAugust 2020 highs. Gold has tested this level three times this summer.
"With this rally, you should give gold its due. Thismove deserves some respect, but let's see if it will continue this week. Istill don't see the big push that is going to come from real money assetmanagers," he said.
Hansen added that there needs to be more volatility inequity markets for gold to see a sustainable bounce higher. He explained thatnobody is interested in holding a safe-haven asset when equity markets arepushing to record highs on a daily basis.
While the gold market still has to prove itself with a newbreakout, Hansen said there are reasons to be optimistic. He noted that theequity rally is consolidated in just a handful of stocks.
"Right now, the stock market is the tail that iscompletely wagging the dog. The risk is with the rally so concentrated in a fewstocks; momentum could turn on a dime," he said. "The way the stockmarket is behaving right now, I wouldn't be surprised if we saw anotherDecember like 2018. It was the worst December since 1930."
Three years ago, the S&P 500 dropped 14% in December,falling to a two-year low.
Looking at other potential headwinds, Hansen said thatinvestors also need to keep an eye on the U.S. dollar as it tests criticalresistance. Although the U.S. dollar remains persistently strong, Hansen alsonoted that rising inflation pressures could end up creating a disconnectbetween the U.S. dollar and gold prices.
Inflation fears were ignited once again Friday when the U.S.Labor Department said that wages saw a 4.9% annual increase in October.According to some economists, companies are boosting wages to attract moreworkers who are leaving the workforce.
Wage pressures are increasing as the Federal Reservereiterated its stance that higher inflation remains temporary.
Last week the U.S. central bank, as expected, announced thatit was reducing its monthly bond purchases. However, Federal Reserve ChairJerome Powell, said that now is not the time to raise interest rates.
In the current environment, Hansen said that breakeven ratesare pushing higher, which is good for gold.
"Right now, the Fed doesn't have a clue aboutinflation, so they will continue to stick with their transitory message,"he said. "If inflation does start to pick up and central banks are behindthe curve, then you will want to have a few gold coins in your pockets."
By Neils ChristensenFor Kitco News
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