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Message: Gold Is Poised To Rally; Expect Resistance at $1,400 - Bloomberg Intelligence
(Kitco News) - 2018 may see metals leading commodities, buoyed by strength in gold, according to a Bloomberg Intelligence report.
The report said that the yellow metal, which has outperformed Bitcoin since mid-December, 2017, is “coiled to move” and should test resistance levels of $1,400, unless key drivers reverse. “Off to a good start in 2018, indications are there’s more to come in precious metals,” said Mike McGlone, senior Commodity Strategist at Bloomberg Intelligence.
Gold has climbed 8% since the Federal Reserve raised rates in December, while Bitcoin has fallen more than 50% within the same period. McGlone’s target means gold has room to push 4% higher. April gold futures last traded at $1,346 an ounce, up 0.22% on the day.
The analyst at Bloomberg Intelligence cites a peaking U.S. dollar, recovering inflation, and mean reversion in depressed stock market volatility as primary factor helping gold.
“Increasing inflation and a declining dollar are strong gold supports,” the report said. “A recovery in stock-market volatility would be an additional pillar. Slight, inevitable mean reversion in the CBOE Volatility Index (VIX) from historic lows may have outsized repercussions.”
The foundations for gold’s key drivers can be seen in similarities to historical precedents. The yellow metal is performing in a similar macroeconomic backdrop experienced just prior to the new millennium, Bloomberg Intelligence stated, when inflation bottomed in a similar way to the current environment.
“CPI bottomed in a similar way a few months later, but from the lowest level in half a century,” the report said, “The same velocity measure of the trade-weighted dollar peaked about a year ago at an 18-year high. Historical mean-reversion risks leave little room for anything but a gold rally.”
On a technical basis, gold has been trading in its narrowest 52-week range in 13 years; September 2005 was the last time that the yellow metals’ Bollinger Bands were narrower. At that time, gold broke out from $400 an ounce and peaked six years later at $1,900.
“The Bloomberg Dollar Spot Index dip to a four-year low indicates a revisit of $1,400 resistance,” the report said, “absent some unforeseen force, gold is poised to revisit resistance levels at the highs from 2013-14.”
Gold’s recent price recovery has bolstered the gold ETF market, with total gold ETF holdings reaching their highest levels since May 2013. “Steady gold ETF holdings indicate a wall of worry from rapidly appreciating financial assets, supporting the metal,” the report added.
According to McGlone, gold may be riding on the back of a larger commodity bull market. “Relative to its primary drivers -- a declining dollar, rising inflation, demand exceeding supply and expanding global economic growth -- the Bloomberg Commodity Spot Index's four-year high in January is on the right path,” he said.
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