The gold market has moved within striking distance of a critical long-term resistance point, and according to one market analyst, there has been no clear catalyst behind this new push.
In a note Tuesday, Nicky Shiels, head of metals strategy at MKS PAMP, said that if gold’s technical momentum remains at the current pace, prices could reach all-time highs within ten days. December gold futures last traded at $2,044.20 an ounce, up 0.21% at the start of the new trading session.
“Since the $1930 bottom/floor, gold has rallied at a pace of +$8/day ($88 in 11 days at the time of writing). If it keeps up that rate, that gets prices to $2100 in 10 days,” she said. That seems pretty soon, but markets have proven to trend until they don’t, and the path of least resistance is up, not down.”
Shiels noted that the gold rally comes as geopolitical safe-haven demand starts to wane, with no clear bullish narrative in the marketplace.
However, she noted that weakness in the U.S. dollar and a sharp drop in U.S. bond yields has helped propel gold to its highest level in six months. Analysts have said that the U.S. dollar is losing steam as investors expect the Federal Reserve will start cutting rates in the first half of next year.
“Gold is a preemptive tool to sniff out a Fed rate cutting cycle,” Shiels said. “And together with a nice tailwind of a very defensive US$ and lower real yields, prices have no reason to sell off.”
One trend Shiels highlighted is that a lot of activity has been happening during Asian trading hours. She noted that higher prices could be the result of aggressive buyers testing thin markets. However, she added that this could be a new purchasing trend from major buyers like emerging market central banks and wealth funds. Previous data has shown central banks have been quick to capitalize on price dips.
“What is remarkable is the sense of urgency stemming from [these participants] whereas the past two years, dips ($1600, then $1800, then $1900) were capitalized on, now the flow is coming to market quicker,” she said. “If this is a sign of Central Banks seeking safety amidst (geopolitical) turmoil, a more fractious global order and an expected reset of any monetary “seismic shift,” then we’d need to change our view of CB activity being supportive to bullish. It’s still too early to tell since, well, data needs to confirm and there have been countless bull traps in the $2000.”
As to how sustainable gold prices are at current levels, Shiels noted that Western investors are still reluctant to jump in, so there is room for prices to move higher as this segment of the market starts to pay attention to the price action.
“Investors have only bought 2.3mn oz the past 10 days and most of it due to fresh COT longs, with some decent wingy option activity being executed,” she said. “There has not been an overreach for prices (which vols would indicate), and buying has been both somewhat aggressive but measured into a wall of producer-related & scrap activity. Gold forwards are not indicating anything suspicious.
We generally are constructive cold hearted (low vol) rallies as there is scope for FOMO participation (which will come closer to ATHs…) to extend rallies into thin liquidity.”
Source: Kitco
