Fundamentals, positioning, sentiment, and technical analysis all point to a further delay in gold’s big move upward, according to Chris Yates of Acheron Insights. For the short to medium-term fundamentals that influence the gold price, the outlook is still somewhat mixed for gold despite a terrific year for the sector. Real yields and the U.S. dollar play a significant role in determining the gold price. While it seems real yields are nearing their peak for this cycle, they are not likely to return to negative territory in the immediate future. The headwind from real yields that has kept a lid on the gold price for the last two-plus years is reaching its crescendo. However, gold has held up well despite the biggest spike in real yields in decades, reaffirming the bullish long-term case. Rate cuts before 2024 are highly unlikely, but historical performance suggests a positive impact on the gold price once rate cuts begin. While the conditions for a significant move higher in precious metals are slowly coming together, they are not yet in place. The performance of the U.S. dollar is one factor that makes Yates cautious about gold’s near-term upside. Another move higher in the dollar could see the gold price continue its period of consolidation and/or correction. However, when the dollar eventually rolls over, Yates expects the bull market in precious metals to continue. Looking at sentiment and positioning, managed money positioning in gold futures suggests speculative positioning is neither overly bullish nor bearish. Sentiment, measured through flows into the GLD ETF, indicates that gold’s recent highs were achieved with only mediocre flows. This suggests that the precious metals market is not exhibiting the speculative furore seen at most market tops. Yates finds encouragement in the fact that the recent correction has also seen meaningful outflows from gold ETFs. Despite flirting with all-time highs, physical gold held by ETFs is at four-year lows. Central banks’ ongoing buying of gold is also a supportive factor. From a technical perspective, higher highs and higher lows indicate a favorable outlook for gold. Any pullback toward the $1,940 support area or even the $1,800 level is seen as an excellent buying opportunity for gold bulls. In conclusion, the short to medium-term outlook for gold and other precious metals remains mixed. Although real yields are likely reaching their peak, continued hawkish Fed policy and the potential for a renewed rally in the dollar may cap gold prices for now. The conditions for a significant upward move in gold may not be in place until 2024. However, the long-term outlook for the sector remains positive, and any material dips should be seen as buying opportunities for those bullish on the sector.
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