Director of WisdomTree Investments says gold is in the perfect spot for a rebound.
Some would call gold’s measured performance this year understandable due to the different headwinds the metal has faced. Since the turn of the year, gold has had to contend with a stronger dollar, rising bond yields and a hawkish Fed rhetoric that promises multiple rate hikes by the end of 2019.
Yet a recent statement issued by WisdomTree Investments suggests that gold’s price consolidation is unjust. According to a recent report on Kitco, Nitesh Shah, the firm’s director, points out that the U.S. dollar has only gained 0.4%, while yields have risen by 11 basis points. According to Shah, these factors would normally be too insignificant to keep gold’s price at bay. Instead, he believes sentiment has been the biggest driver of gold’s performance in recent months.
Shah explained that his firm uses speculators’ positions to gauge market sentiment relating to the yellow metal. According to Kitco, the director thinks that the recent shorting of gold was by and large excessive and has placed the metal in the perfect spot for a rebound.
Shah feels that gold’s price action is especially unusual given the numerous risks in the market and beyond. This year has seen the Doomsday Clock, a measure of likelihood of all-out nuclear war, move the closest to midnight since the height of the Cold War. After many years of stellar performance, stocks have finally begun to show cracks and many feel that the equity market is moving towards a major correction.
Other risks this year have included shaky emerging markets aggravated by the strength of the U.S. dollar reports the article. In particular, Turkey has come under a currency crisis that all but collapsed the lira, with dire implications for the eurozone and the global economy as a whole. Meanwhile, Venezuela continues to grapple with its own hyperinflation issue, as the nation’s annual inflation rate recently exceeded one million percent.
Keeping this in mind, Shah predicts that gold will recapture most of its losses by the end of the year reports Kitco. Shah noted that even a mild price recovery would be sufficient to cover many short positions, although he expects that speculators will eventually restore most of their longs. Shah and his firm see gold at $1,270 by the end of this year with a forecast for $1,320 an ounce by the end of Q3 2019.
Speaking about the catalysts that will expedite the price jump, Shah listed complications surrounding Brexit as a likely factor. According to the article, other drivers will include an escalating trade war between the U.S. and its main trading partners in China, Canada and the European Union, as well as other financial tensions.