Is gold primed for rally?

Gold is primed for a turnaround and could be ready to rally past $1,900 an ounce as the sentiment in the bullion market has reached its “maximum disdain,” precious metal analysts said.

Since the outlook for gold price is positive, any dip in gold price should be seen as a buying opportunity, they said.

What will trigger the gold price rally in the near term? Analysts are of the view that a slide in the dollar index will trigger the rally. Euro and pound constitute around 70 per cent of the dollar index. The Bank of England has recently announced a 25 bps interest rate hike whereas the European Central Bank is also hawkish on interest rate hike. This has led to sharp upside movement in euro and pound leading to slide in dollar index.

After a year of consolidation, gold has formed a solid price bottom at around $1,700 an ounce. As the Federal Reserve gears up to raise rates and reduce liquidity, the precious metal is a potential top performer this year, said Bloomberg Intelligence senior commodity strategist Mike McGlone.

“The elongated stock-market rally, recent commodity bounce and competition from Bitcoin may have pushed the metal close to maximum disdain, solidifying gold’s foundation versus the ‘there’s no alternative’ mantra,” McGlone said in a report.

“We see gold-bottoming parallels to the 2008 and 2018 foundations.”

All eyes are on the Fed’s March decision, with the CME’s FedWatch Tool pricing in a 92.5 per cent chance of a 25-basis-point rate hike. If all goes according to plan, gold might be looking at a similar launchpad as December 2015, when gold rallied from $1,000 an ounce to above $1,300 an ounce within just six months, McGlone said.

Continuing tensions between the west and Russia over Ukraine and the prospect of interest rates rising loom over future price moves. However, the overall trend for gold price is bullish as soaring crude oil prices have put global inflation concern at alarming level forcing Bank of England to increase interest rate by 25 bps, according to commodity market experts. Similarly, European Central Bank and US Federal Reserve are hawkish on interest rate hike but recent appreciation in euro and pound against the dollar is going to support gold price rally further. They said that the US is putting pressure on the Opec countries to increase oil drilling but member countries may not comply with the US government’s demand as their drilling cost has gone too high that rise in crude oil would help them pare the losses incurred due to lower oil prices and rise in their drilling cost.

Last week, after hitting $1,852 per ounce levels in spot market last week, gold price witnessed retracement after the profit-booking trigger, but after the announcement of 25bps interest rate hike by the Bank of England and crude oil prices surpassing $90 per barrel, the yellow metal price has rebounded and closed above $1,800 per ounce in spot market on Friday.

Spot gold price has been able to hold above $1780 per ounce for the last one month, which signals that immediate support for spot gold price is a strong support for the yellow metal. It is now having strong resistance at $1855 levels. So, gold price in the international market is trading in the range of $1780 to $1855 per ounce levels these days and once it sustains above $1865 levels, it may soon go up to $1900 to $1910 levels. So, those who have short-term vision can book profit at around $1855 levels whereas those who have a medium to long-term view should wait for the next breakout at $1865 levels, which is expected by the end of one month, analysts said.

“Gold is a prime candidate to follow the pattern of commodities that trade within narrowing wedge patterns -- they have a tendency to break out to the upside. The 2021 range of about $1,700-$1,950 an ounce roughly matches the 50-week Bollinger bands, which are the narrowest since 2018,” McGlone said.

“About $1,700 is a solid base for a potential breach of $1,900 resistance.”

ABN Amro’s gold price prediction for 2022 is bearish, expecting the precious metal to average $1,500 and fall to an average of $1,300 in 2023. Scotiabank’s gold forecast sees a move back above the $1,800 level to average $1,850 in 2022 but decline to $1,700 in 2023.

— issacjohn@khaleejtimes.com