(Kitco News) - Gold’s major headwinds seem to have been priced into the market and that’s why one analyst says the metal is setting itself up for a year-end breakout.
Looking at both gold and SPDR Gold Shares (GLD) prices, Albright Investment Group’s founder Victor Dergunov says even the technical picture is looking bright for the yellow metal.
“We see a clear uptrend that materialized in late 2016, there is a series of higher highs and higher lows, and recently, we can see that GLD appears to have made a double bottom at the $120 level. The ETF hit $120 in early October, bounced, came back, retested it, consolidated, and now appears poised to move higher,” he noted in a recent Seeking Alpha post.
Fundamentals are also tipping in gold’s favor, he continued, noting that rising inflation, a weaker U.S. dollar, relatively low interest rates and the possibility of geopolitical and economic instability are all in the cards.
“These instrumental underlying factors seem to be aligning beautifully with an extremely favorable technical image as well, leading me to the conclusion that GLD/gold prices are significantly undervalued and are likely to retest this year’s highs before ultimately proceeding higher into year-end,” he said.
“The new trading range for GLD, which I anticipate will be reached early in 2018 is expected to be between $128 and $137, which coincides with roughly $1,350 and $1,450 in gold.”
Despite recent pressure, the gold market moved higher Thursday. December Comex gold futures settled the day 0.3% higher at $1,287.50 an ounce while GLD last traded at $122.17, up 0.44% on the day.
Looking at each fundamental factor more closely, Dergunov suggested that the U.S. dollar and U.S. stock markets, which have both been stealing away investors from the gold market, seem ready to reverse.
“Although the buck has mustered an impressive counter-rally of nearly 5% over the last two months, it is unlikely that this upward momentum will be sustainable over the long term,” he wrote. “Inflationary pressures are likely to be overpowering for the fragile currency, and are likely to push the buck back down going forward. This will undoubtedly serve as an additional favorable tailwind for the yellow metal.”
As for the Federal Reserve’s December rate hike, it is already baked into the gold price, and so the metal has little “downside risk” moving forward, said Dergunov.
“The market is not expecting another rate increase until June 2018, giving gold an increase-free interest rate environment going all the way out to mid 2018,” he added.
The metal will also likely remain floored by safe-haven demand.
“There are plenty of tense geopolitical hotspots around the world right now, not least of which are North Korea, Saudi Arabia, Syria, and Iran,” he said. “Fears of a military conflict with N.K. have subsided in recent months; however, they can’t be ruled out altogether, as the rogue regime continues its nuclear ambitions in the face of international outrage and condemnation. The Middle East is another explosive area in the world.”