Gold Doing What It's Supposed To But Not Immune To Lower Prices - Analysts
(Kitco News)- While gold won’t beimmune to lower prices in the near term, analysts note that the yellow metal isdoing what it advertises as it provides important diversification while outperformingcrashing global equity markets.
“Gold has tradedrelatively calmly during the bond and stock market turmoil this past week.Investors who bought gold in recent months in response to increased marketcomplacency are now being rewarded by gold's - if not absolute - then at leastrelative performance compared with other asset classes,” said Ole Hansen, headof commodity strategy at Saxo Bank.
However, Hansensaid that gold could be sensitive to some selling pressure in the near term asthe market continues to look overextended, especially as the U.S. dollarbounces from oversold levels.
Gold prices arerelatively flat on the day ahead of the North American equity open. April goldfutures last traded at $1,337 an ounce; at the same time, the U.S. dollar Indexis trading near a one-week high at 90 points. According to reports, stocks areexpected to see further follow through selling after Monday’s biggest pricedecline in history.
He added that awholesale rise in “risk off” sentiment would continue to boost the U.S. dollarhigher, dragging down gold prices.
On a technicalbasis, Hansen said that gold appears to forming a head-and-shoulder pattern. Headded that if gold prices break support at $1,328 an ounce, the next majortarget would be $40 lower.
Bill Baruch,president of Blue Line Futures, said that he maintains his long-term bullishstance in gold, but regardless of equity markets, he does not recommend chasingthe market at current levels.
“It is important toremember that gold at times can be a casualty to stock-market weakness in themidst of a crash due to selling to meet margin calls on the equities side,” hesaid in a note to clients. “We maintain, regardless of the equity market, thereis limited upside in gold because of the crowded long position and the fact is,it needs a cleansing.”
Baruch added thathe would look to re-enter the gold market when prices fall to around $1,325 anounce.
By Neils ChristensenFor Kitco News
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