Gold Prices ‘May Yet Get Worse’ Before It Gets Better - ICBC's Tom Kendall
San Francisco (Dec 9) After a stellar start to the year, gold is back down near 10-month lows and these lower prices are likely to persist for some time, according to one international bank.
Tom Kendall “After a sustained fall in any asset, there is a risk of turning bearish just as the market finds a floor,” noted Tom Kendall, head of precious metals strategy for ICBC Standard Bank.
“However, the problem for gold right now is that the mechanism by which that floor is created has largely seized up.”
To Kendall, the best case scenario for gold investors is that the metal stabilizes in the $1,150-1,190 area.
“Right now, however, the momentum still appears to be in the other direction, Comex speculative positions are not at extremes, and so a move in the US 10-year to 2.60% could easily result in gold dropping below $1,100,” he added.
Gold prices were under pressure Friday with February Comex futures settling the day 0.9% lower at $1,161.90 an ounce.
According to the longtime precious metals analyst, the headwinds for gold are likely to stick around until at least the end of January.
One factor backing Kendall’s case is that demand from jewelers and bullion dealers, particularly in China and India, typically rise when prices fall under pressure, which hasn’t been the case.
“[I]ntervention by policymakers in both countries has disrupted, at least temporarily, the market’s natural reaction function and shipments to both destinations have slowed to a crawl,” he said. “We do not expect either situation to ease meaningfully before the next Indian budget and Chinese New Year – both of which will fall around the end of January 2017.”
Likewise, Kendall noted that heightened optimism in the U.S. economy related to expected fiscal stimulus from a new President is also weighing on gold, and is likely to “persist at least until Trump is inaugurated (January 20th), and probably for several weeks thereafter.”
If this were to hold true, he continued, U.S. treasury yields would likely rise faster than inflation expectations and in turn bring up real interest rates, which would hurt gold prices.
“The relationship between gold and US real rates has been fundamental since the global financial crisis and remains very strong,” he explained.
Source: KitcoNews
