(Kitco News) – The gold investors are breathing a much-needed sigh of relief after the precious metal pushed to a 10-week high, seeing its best gains in two years, but more work needs to be done, according to one commodity analyst.
In a report Friday, Ole Hansen, head of commodity strategy at Saxo Bank, said that after Thursday’s rally, which saw prices rise more than $29 on the day, he is now bullish on the metal in the short-term. Gold is holding on to most of its recent gains, with December gold futures last trading at $1,223.2 an ounce, down 0.36% on the day. For the week gold prices are up 1.4%.
“The emerging softness in U.S. stocks this week combined with the recent rise in bond yields and speculation that the dollar may be peaking have triggered renewed demand for diversification and tail-end protection,” he said.
While gold has pushed above critical near-term resistance levels, Hansen said that the market isn’t completely out of the woods yet. He warned that more work needs to be done to pressure bearish investors to cover their short positions.
“Gold has now cleared the first hurdle of resistance at $1,210/oz but in order for this to be more than a weak correction within a major downtrend it needs at a minimum to break above $1,238/oz, the 38.2% retracement of this year’s sell-off,” he said. “A correction over the coming days following Thursdays strong gains need to be halted ahead of $1,210/oz in order for this improved technical outlook to take hold.”
However, Hansen added that investors should not ignore the yellow metal’s potential. He explained that if the near-record speculative short positions are reversed, prices could quickly climb $50 to $75.
“A continued focus on stock, bonds, and growth weakness and the potential of the dollar running out of steam could see the metal embark on a recovery towards $1,300/oz, our year-end target. Much still depends, however, on the overall market sentiment, which has been rattled by rising rates and falling stocks,” he said.
By Neils Christensen
For Kitco News