After the recent rally above $1,600, look at who just said gold should trade even higher in 2020.
Fed Balance Sheet Problems
January 10 (King World News) – Ole Hansen, Head of Commodity Strategy at Saxo Bank: “The first full week of trading turned out to be much more volatile than normal as geopolitical tensions ebbed and flowed. The year had barely begun before the US assassination of General Soleimani near Baghdad airport triggered fears of an imminent escalation of the conflict between the U.S. and Iran…
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Crude oil and gold both spiked before crashing after both sides stepped back from further military action. Brent crude oil traded within a 10% range before finishing 5% lower to record its first weekly loss in six. WTI finished even lower following a bearish U.S. inventory report which saw stocks rise in both crude oil and products.
Look For Gold To Move Even Higher In 2020
Gold, the safe-haven metal, spiked above $1600/oz for the first time since 2013 only to be slapped straight back to unchanged on the week. From a technical perspective this development left a signal on the weekly chart which for some could be interpreted as a key reversal. While it is clear that gold needs more than geopolitical uncertainty to continue moving higher in 2020, we see the fundamental outlook providing enough support to offset any short-term technical weakness.
GOLD POST $1,600+ SPIKE: Fundamental Outlook
Should Offset Short-Term Technical Weakness
Consolidation Is Needed In Q1
After racing higher this past week, and almost reaching our 2020 target at $1625/oz in three days, gold may now spend most of the first quarter consolidating. From a technical perspective preferably above $1510/oz and no lower than $1450/oz, before eventually moving higher later in the year. The short-term consolidation risks also takes into consideration the near record level of long hedge fund positions, which in the short-term could act as a drag on the price through long liquidation.
Geopolitical events such as the early January US-Iran standoff has supported gold but only for relatively short period of time. Apart from the underlying support from money managers using gold as a portfolio insurance the yellow metal need support from some of our 2020 expectations in order to climb further. They are:
1. Federal Reserve cutting rates by more than expected
2. Rising inflation concerns through higher input costs from energy and food
3. Continued central bank buying (de-dollarization)
4. A weaker dollar and not least multiple event risks culminating in the November US Presidential election.
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