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Following a W formation in March gold has had a good run. Gold does not go up and down in a straight line – e.g. in the June options expiration period gold was hit fairly hard. There could be a further move lower in gold, but this could create a once in a generation buying opportunity. Traders will need to be patient however.

Some forecasts are putting the price as low as $1450, which truly would be a once in a generation buying opportunity. Gold has been capable of delivering 100 point moves over the very short term. We are now into the September expiration which has scope to do a lot of damage to the gold price.

Gold was trading at $1763 at time of writing. It has slipped considerably since early June when it was over $1900. Silver is also well down, trading at $22.41. It is well off highs achieved in June where it was trading close to $30.

Between a rock and a hard place?

“With equities struggling in recent times and inflation concerns growing, you would expect gold – seen by many as an inflation hedge – to be surging higher right now,” says Victor Argonov, senior analyst with Exante. “However, this hasn’t been the case. The precious metal is stuck between a rock and a hard place. While inflationary concerns and haven flows are helping to provide support, this has been countered by concerns that global central bank policy might be tightened quicker than previously anticipated as policymakers prevent overcooking inflation.”

Rising expectations over interest rates means investors are thinking twice about buying assets that pay no interest or dividend, such as gold. Additionally, storing gold costs money. With global bond yields still being very low on historical basis, many yield-seeking investors may feel it might be the right time to allocate more funds into bonds as rising inflationary pressures might lead to higher interest rates, and in turn, better yields on government debt.

Seasoned investors are continuing to load up on gold and silver bullion, with a belief in the value of real assets. This includes gold coins and 10 oz bars.

Inflation is still on the march

Inflation is still in the march – traders are concerned already about the pace of food and petrol inflation. 2021 is shaping up to be the year of trading dangerously, with multiple bear markets (e.g. Chinese ADRs) trading against bull markets (e.g. natural gas futures). Big gold buyers are going to remain very focused on the precious metals markets. Some are expecting central banks to jump in to start to cool off inflation, but others are concerned that there are other factors at work, including supply chain disruptions caused by lockdowns, which are now also pushing up prices across the board.

Analysts are expecting the US Federal Reserve to announce its schedule for reducing monthly bond purchases along with new economic projections. Tapering of the stimulus by the US central bank could in turn push down the gold price. This could see gold dropping through the $1500 level as many investors are still averse to its non-yield bearing characteristics.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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