Gold To Sustain Rally, Test Resistance At $1,400 - Sucden Financial
(Kitco News) - Gold is expected to see a sustained rally on the back of aweakening dollar, overvalued stock markets, and heightening geo-politicaltensions, according to a report from Sucden Financial.
In the near term, analysts at the international brokeragefirm said they see a modest retracement in the yellow metal to $1,320 an ouncebefore climbing higher to test resistance at $1,400 an ounce, be a multi-yearhigh.
Since its December low at $1,236.50, the yellow metal hasrallied 8% following a much anticipated Fed rate hike. The rally coincided withstrong upward momentum in equities. However, Sucden Financial doesn’t seegrowth in the stock markets lasting forever, and a reversal in trends may bodewell for precious metals.
The report stated that interest in safe-haven assets likegold could rise as valuations in stocks become increasingly overstretched,particularly when interest rates are rising at a time when global net debt isat $233 trillion, introducing “risk to the world economy.”
“As stocks continueto achieve record highs, apprehension amongst investors could increase and wemay see inflows into gold,” the report said. “The majority of [gold] trading islikely within a $1,300-1,400 an ounce range.”
According to the report, another tailwind for the yellowmetal comes from the Phillips curve, or the inverse relationship betweenunemployment and inflation; traditionally, when employment improves, inflationwill increase, and vice versa.
“If demand-pull pressures return, as the PMIs suggest theyare, sustained inflation would enhance the likelihood of investors using goldas a hedge,” the report said.
Despite weak physical demand in gold thus far in 2018,Sucden Financial remains optimistic on demand as economic growth and fallingunemployment provide supports for the yellow metal.
“We may see an uptick in physical gold demand, be it jewelryor technology consumption,” the report said.
Physical demand was held back in Q4 2017 as lacklusterconsumption from India, particularly during the Diwali festival, failed toimpact the market.
A rally in gold prices since mid-December has also bolsteredinterest in gold-backed ETFS, as total known ETF holdings rose in October andNovember to the highest level since 2013 at 71.93 million ounces, and continuesto climb into the new year.
“Risk aversion has caused a surge in demand for the yellowmetal in the opening weeks of 2018, with known ETF holdings increasing to 72.49million ounces,” analysts at Sucden Financial said.
By David LinFor Kitco News
Follow @davidlinMTL
dlin@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.