Gold finds itself in a worse place, if you trust Kevin Warsh
It was a week in two parts of the gold market.
The good news came early as the Iran war ended, and seemingly for real this time. That news helped to extend a rally that started late last week and lifted gold from a low of $4022 to as high as $4382.
The peak came just before the FOMC decision and it proved to be a gamechanger. The statement was hawkish and it was backed up by repeated assertions from new Chairman Kevin Warsh that they’re determined to hit the 2% inflation target. He was deliberately vague on the specifics though and that has the equity market questioning whether higher interest rates actually coming.
Compounding the pain for gold this week has been Goldman Sachs analysts cutting their targets. They revised their year-end forecast to $4900 from $5400 per ounce.
“Our gold price views remain structurally constructive but tactically
cautious, with near-term downside risk and medium-term upside risk,”
they said.
Mind you, $4900 at this point would be perfectly fine with most gold bugs. Gold is down $58 today to $4150 and touched as low as $4121. It’s perilously close to a retest of $4000 and an ugly potential breakdown.
The momentum is all downwards from here and the fundamentals aren’t exactly constructive. Gold hasn’t been able to rally on a more-positive risk backdrop since April and the bulls are struggling to stay optimistic.
The good news is that the Iran war might actually be over and oil prices are falling. A big problem for gold during the war was the risks to emerging market current accounts. Turkey sold $120 billion in gold early in the conflict as oil prices spiked and that scared everyone into thinking more was coming. Now, with oil down to $76.85, those risks are minimal. In response, reserve managers might be looking to rebuild stockpiles and a relatively attractive price.
This article was written by Adam Button at investinglive.com.