Metals Focus: Gold 'Relief Rally' Not Over But Headwinds Persist
(Kitco News) - Theconsultancy Metals Focus says gold’s recent “relief rally” has more room to runand could carry the metal over $1,300 an ounce in the months ahead, yetanalysts also do not project a sustained rally over the next year due to anumber of potential headwinds.
Spot gold hit a three-month high just below $1,242 an ounce Friday, continuing a rallyfrom a series of daily lows in the $1,180s during September and August troughof $1,160.75. The move was initially fueled by a softening of the U.S. dollar,before drawing investor interest as global equities sold off during October.
Additionally,gold was helped when traders with short, or bearish, positions in the futuresmarket began buying to exit from those trades, Metals Focus said in a reportMonday.
“Lookingahead, we believe that the relief rally that gold has enjoyed still has someway to go,” Metals Focus said. Analysts cite potential for still more shortcovering, as well as potential for fresh buying, with gross longs far below theJanuary peak.
Themacroeconomic backdrop should also support gold for a while, since trade-warworries have abated some, equities are less lofty and financial markets havealready priced in an expectation that U.S. interest-rate hikes to continue forthe next year.
“As such,we would not be surprised to see a breach of the $1,300 mark before the end ofthe year, with a peak in the mid-$1,300s plausible during the first quarter of2019,” Metals Focus said. “Beyond that though, it is hard to see gold beingable to sustain an uptrend.”
Thus,while the consultancy might look for higher prices in the long term, analystssaid there are still a number of headwinds for the medium term.
“First,even if priced in, the backdrop of rising U.S. interest rates, coupled withpolicy rates across other reserve currencies remaining low, will continue toweigh on professional investor interest in gold,” Metals Focus said. “Meanwhile,the health of the U.S. economy seems likely to be sustained, at least over thenext six [to] 12 months, and this should perpetuate mainstream investors’commitment to U.S. equities and limit the appeal of safe-haven assets likegold.”
Further,worries about European economic growth and political risks may underpin the U.S.dollar, thereby providing another headwind for the yellow metal due to theinverse relationship between the two markets, the consultancy continued.
“Simplyput, the argument for rotating into the metal will be hard to make, given thisunsupportive macroeconomic backdrop and arguably better opportunitieselsewhere, notably equity markets,” Metals Focus said.
“Thisshould in turn see a return to such range-bound conditions as we had seen formuch of the first half of 2018. As a result, Metals Focus’ projections over thenext 12 months for the gold price see it fluctuate in a $1,200-1,360 range,averaging around $1,300 over the period.”
By Allen SykoraFor Kitco News
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