The gold market has room to fall further and even test support at $1,800 an ounce after falling below $1,900 for the first time since March; however, any short-term weakness does not change the long-term fundamental bullish outlook for the precious metal, according to one market analyst.
In an interview with Kitco News, Ole Hansen, head of commodity strategy at Saxo Bank, said that given where bond yields and the U.S. dollar have been for most of the month, the selloff should have happened sooner than it did. He added even after Wednesday’s selloff, gold prices remain relatively strong.
Spot gold prices last traded at $1,864.10 an ounce, down 0.58% on the day. At the same time, 10-year bond yields are currently trading near fresh 16-year highs at 4.6%. The U.S. dollar index is holding at its highest level in nearly a year, above 106 points.
Hansen added that the weakness in gold makes sense as the Federal Reserve maintains its tightening bias. Last week, the U.S. central bank left interest rates unchanged but signaled that it was prepared to leave interest rates in restrictive territory for the foreseeable future as it looks to bring inflation down to its 2% target.
Although the Federal Reserve remains optimistic it can navigate a soft landing for the economy as it chokes off growth with restrictive interest rates, Hansen said that the market is giving off different signals. He noted that the bear steepening in the yield curve continues to point to an impending recession.
Hansen said the Fed is now caught in the middle of slowing economic growth and persistently higher inflation due to rising energy costs.
“In my book is incoming stagflation and that’s been holding gold up at these levels,” he said. “We have said before, but now is the time to be patiently bullish on gold.”
Although the Federal Reserve’s stance is monetary policy stance is working against gold, Hansen said that he suspects as growth weakens, sentiment will shift in the marketplace. He added that investors are still afraid that the Fed’s aggressive stance will push the economy into a recession.
Source: Kitco
