Gold Remains An Attractive Insurance Policy - Scotiabank
(Kitco News)- While gold faces a lot of headwinds at the start of a new year, analystsat Scotiabank said that this could be the market’s biggest strength.
In a recent report, the analysts explained that gold remains anattractive diversifier as global equity markets continue to hit record levels.
“Perhaps it is because of the strength in other markets and theapparent complacency regarding geopolitical tensions that some investors arebuying Gold as an insurance in case the goldilocks set-up unwinds,” theanalysts said. “You do not buy insurance expecting your barn to burn down; youbuy it in case it does.”
The Canada-based bank added that given the size of the global goldmarket, it wouldn’t take much rotation into the precious metals to continue topush prices higher. Because of the market’s current bullish momentum, analystsare eyeing a near-term target of $1,366 an ounce. They added a push above thisresistance level would signal a break of a four-year base.
February gold futures last traded at $1,336 an ounce, relatively flat onthe day.
One significant factor behind the new momentum in gold has been a weakerU.S. Dollar Index, which has stabilized after falling to a three-year low atthe start of the week. Scotiabank said that gold investors don’t have tonecessarily fear renewed strength in the greenback.
“If the dollar rises on the back of inflationary fears andinterest rates and bond yields rise, then although that increases theopportunity cost of holding Gold, Gold prices may continue to rise as moremoney flows out of equities and bonds and into safe-havens,” the analysts said.
The bank also sees gold benefiting from an uptrend in theoverall commodity, which is expected to push inflation higher, and potentially introducing more volatility intofinancial markets.
“If sentiment about inflation does start to change then thatcould have an adverse impact on equity and bond markets as well as raisingconcerns about servicing global debt, which is estimated at $215 trilliondollars,” the bank said. “All reasons for taking out some insurance againstadverse market moves.”
The Canadian bank is not just bullish on gold as they alsosee strong potential for silver prices in 2018. The analysts said that they seepotential for silver prices to eventually break resistance at $17.47 an ounce,which opens up a target to $18.21 an ounce.
“With industrial demand accounting for around70% of Silver’s fabrication demand, the return to concerted global economicgrowth bodes well for physical demand,” the analysts said. “This should helpsupport a decrease in the Gold/Silver ratio that already seems to be underway.”
By Neils ChristensenFor Kitco News
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