Bloomberg author says weakness in the dollar could push gold to $1,400 an ounce
Gold’s performance in recent weeks has seen the metal surpass the 2017 high of $1,359 an ounce and make a strong run towards $1,400. To Bloomberg’s Marcus Ashworth, the most important factor to look out for as the metal approaches this key level is continued weakness in the dollar.
The greenback has been on a steady decline for over a year, with a notable downwards spike in December that saw the dollar index reach its lowest level since 2013. The general sentiment is that the dollar will continue trending down, a notion backed by stances from both U.S. officials and the President.
Ashworth writes that after a long-standing tradition of U.S. financial figures supporting a strong dollar, Treasury Secretary Steven Mnuchin shocked some observes by welcoming a weaker greenback in his speech at the World Economic Forum in Davos. While puzzling for some, Mnuchin’s words were in line with Trump’s proclamations that the dollar is too strong, thereby hurting U.S. trade.
There is little question that a weakening dollar brings with it associations of a struggling economy, and it has, in the past, caused exactly the kind of panic that gold benefits from.
Ashworth argues that a guarantee of more weakness in the dollar is tantamount to a guarantee that gold will continue climbing. Another source of worry for investors noted in the article is the cryptocurrency market, which recently saw an unprecedented drop across the board, with all of the top 50 cryptocurrencies experiencing losses.
Although this is certainly beneficial for the yellow metal, Ashworth contends that dollar weakness could be the deciding factor behind gold breaking past $1,400 an ounce. A decisive move beyond this resistance could signal a return to levels last seen during the 2010-2013 sovereign debt crisis. Once there, participants will need to turn their attention towards inflation in order to gauge gold’s standing.
Inflation has been subdued in recent times, with the index moving backwards and away from the Fed’s targeted rate. This strengthened inflation concerns, and multiple analysts warn that the Fed will find itself caught unprepared by a rapidly-rising inflation rate states the article. The movement in the dollar strongly suggests this, as plunges in the greenback go along with a spike in inflation.
It’s not clear when inflation will finally rear its head, but signs point to it happening sooner rather than later. Together with a near guarantee that the dollar index will continue sliding, these two factors could be everything gold needs to test new highs in a continuation of its stellar performance.