(Kitco News) – The gold market is finally starting to shake off its summer doldrums as prices retest critical resistance at $1,830 an ounce.
Aside from the recent flash crash, many analysts have noted that the gold market has been eerily quiet the last few months as investors focus on the red-hot equity markets and prepare for the Federal Reserve to start shifting its monetary policy.
I recently had a chance to talk to WisdomTree’s Nitesh Shah. He said that according to his models, gold prices are 12% undervalued as investors focus on record valuations in equity markets and U.S. monetary policy.
Bloomberg Intelligence also noted gold’s cheap valuation, saying it is a discounted asset in a bull market.
Gold’s underappreciation in the marketplace is starting to attract some attention from prominent hedge funds. Not one but two billionaire investors and long-time gold bulls came out with bullish outlooks for the precious metal. John Paulson, president of Paulson & Co., said that he could see gold prices go parabolic as rising inflation forces investors out of bonds and cash en mass.
Meanwhile, Mark Mobius, founder of Mobius Capital Partners, said that investors should hold 10% of their portfolio in gold.
So, it looks like gold’s sleep days could be over, especially as the Fed is expected to put its plans to reduce its bond purchases on hold for the next few months if not for the rest of the year. This uncertainty around U.S. monetary policy increased following significantly disappointing labor market data.
For many economists, a positive August employment report would have put the Federal Reserve on track to taper its monthly bond purchases by the end of the year. Economists were expecting to see job gains of around 720,000. Instead, the U.S. Labor Department said that only 235,000 jobs were created. This is well below the lowest individual estimates.
As expected, the U.S. dollar dropped following the news and gold prices have risen. Analysts are now saying that gold prices have a path back to $1,900 an ounce.
However, before we can get there, we first have to get through resistance around $1,835 an ounce. The gold market has tested this level three times this summer and has failed to hold. The last time the market was at these levels, we experienced before last month’s flash crash.
U.S. monetary policy will also remain a heavy burden for the gold market. Although tapering could be delayed well until March, analysts don’t expect it to be removed entirely. At some point, the Federal Reserve will have to tighten its monetary policies. That environment could continue to weigh on gold investment.
But for now, gold investors can enjoy the ride.
Have a great weekend.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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2021-09-03 21:31:00
