Factors point to glittering gold ahead

Dubai: Gold investors have reasons to be bullish.

Receding prospects of rate hikes by the US Federal Reserve, which may result in a weaker dollar, and political uncertainty may trigger buying in the safe-haven metal.

Gold prices traded at the highest level in six weeks at $1,263.80 an ounce as dollar tumbled to its lowest level in more than a year.

“Volatility in gold markets is lingering at multi-year lows, suggesting there may not be much more topside on the cards even if market sentiment remains supportive toward gold in the short-term,” Edward Bell (left), commodity analyst with Emirates NBD said.

“The conditions that are creating positive sentiment for gold — declining rate hike prospects and a weak US dollar — are also helping keep equity markets at elevated levels, offering up some competition for investor funds,” Bell said.

And even gold’s ascent despite all-time highs witnessed in equity markets and bounce in yields from lows is making investors more bullish.

Gold prices touched a high of more than $1,350 in July 2016 only to fall nearly 17 per cent in a span of five months. The prices have been trading in a narrow range since then.

Gold prices may average to $1,275 per ounce in the third quarter, followed by a fall to $1,180 an ounce in the subsequent quarter, Emirates NBD estimates.

In 2018, the bank expects brighter prospects for the yellow metal.

Heightened political uncertainty in the US may trigger liquidation of Trump trades, which were triggered on the back of expectations of higher infrastructure spending in the US, and gold may gain lustre.

“Should the economy start to shudder, affecting equity markets, and the Fed follows through on Yellen’s caution that the topside for rates may be approaching soon, then gold’s safe haven status could be alluring once again,” Bell said.

Irrational:

Sudheesh Nambiath (left), lead analyst, GFMS, Thomson Reuters feels all factors point to a bullish case for gold amid growing irrationality in markets.

“The low volatility on a safe haven instrument like 10-year treasury suggests that this is at bottom of cycle. Each of these hints that there are unknown problems lurking over the horizon and that will help bring back gold’s sheen,” said Nambiath.

A stock market capitalisation, which is more than double the size of an economy when inflation is struggling to hit threshold, is an indication of some over leveraged bets, according to Nambiath.

He expects gold price could rise to $1,355 an ounce by end of this year and to $1,410 next year.

Uncomfortable

Gold one-way rally is probably making the sellers on Comex uncomfortable.

According to data from the US. Commodity Futures Trading Commission till July 18, the sell positions in gold were the highest since December 2015.

“We suspect some short-covering may have already occurred since the data was collected, aiding gold’s climb towards the recent high just shy of $1,260 this week,” Joni Teves, strategist at UBS, said in a note.

“Gold’s resilience is likely making those who remain short uncomfortable right now, although the relatively orderly rally suggests that the nervousness has not reached extreme levels as yet,” Teves said.

“Positioning suggests there’s ample room for further short-covering as well as fresh longs, especially if prices manage to break resistance around recent highs,” Teves said.