Last week’s sell-off in gold, which ensued after a breach of the long-term strong support at $1850, raised doubts whether the bull market is nearing an end.
Still holding an upbeat outlook on the yellow metal, TD Securities (TDS) Commodity Strategist Daniel Ghali explained that the drivers that pushed gold to new highs back in August are still very much there.
Key quotes (via Kitco News)
"One way to look at this is to see what drives people to buy or sell gold. When we break that down, it comes down to factors that we can actually see in real-time. Things like the U.S. dollar, real rates, nominal rates, etc.”
"The price action in gold right now is entirely inconsistent with what's going on in those other markets. And what that tells us is that it is overwhelmingly driven by positioning changes. Most likely, what has happened is that gold prices have breached some threshold that was essentially maximum pain that some market participants could withstand."
“With no stimulus yet in sight, the big question for gold is whether or not the market can count on the Fed to do more in December.”
"More specifically, the change in weighted average maturity that some part of the market expects. That was the focus of the Fed minutes and will likely be the focus of the mid-December FOMC meeting. That's ultimately what will determine whether or now gold prices will resume their upward trajectory in the near future.”
Gold lost 4.5% on the week, reaching the lowest levels in four months at $1775 before recovering to $1787 into the weekly close.
The bright metal reached record highs of $2075 in August, mainly in response to the massive monetary and fiscal stimulus deployed worldwide to cushion the economic blow from the coronavirus pandemic.
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