Gold Rally Stalls As Prices Settle Around $1,700, Analyst Expects Further Pullback

A gold rally that followed the Federal Reserve's signal of no interest rate hikes through at least 2022 was dissipating Friday.

The price of gold was around $1,735 at the time of publication. 

Gold's Safe Haven Rally: This year’s rally in gold has come on the back of a coronavirus-led surge in safe-haven buying and a plunge in interest rate expectations, according to Capital Economics. 

“We suspect that the uptick in the gold price has come from investors positioning themselves against the risk of inflation, though we don’t expect it to pick up much in the short term. As such, we think the gold price will fall back by year-end,” Capital Economics commodities economist James O'Rourke said in a research note.

The analyst expects gold will come under pressure from fading safe-haven demand, falling to $1,600 per ounce by year-end.

“We expect U.S. interest rates to remain at their lower bound going forward, so the gold price is unlikely to benefit from a further fall in rate expectations anytime soon. And unless the virus takes a turn for the worse, we think safe-haven demand will wane too as the global economy recovers, ultimately weighing on the gold price,” O'Rourke said. 

Temporary Pullback In Gold? Bryan Slusarchuk, CEO of Fosterville South OTC, said the underlying fundamentals for gold are extremely strong: quantitative easing infinity, a low-to-negative interest rate environment and unprecedented monetary and fiscal stimuli.

“Paper currency is being devalued both intentionally and unintentionally and the result will be higher values ascribed to the only currency that can’t be printed, the CEO said. 

Slusarchuk said this “temporary pullback” is a combination of profit -taking and continued strength through Thursday in the U.S. market. 

“When the larger markets level out or correct, and the underlying factors supporting gold strength become more broadly known, gold will take the next leg up in what is a once in a generation gold bull market en route,” he said. 

Price Action: The SPDR Gold Trust GLD was up 0.49% at $163.19 at last check, while the VanEck Vectors Gold Miners ETF GDX was up 0.43% at $32.97. 

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