Gold bears beware as rout ebbs

METAL IS SHOWING RESILIENCE, HOLDING NEAR $1,200 AN OUNCE SINCE LATE AUGUST

Beleaguered gold bulls are finally getting a rest from this year’s sell-off, and some see encouraging signs for a turnaround in the metal.

After falling for five straight months, the longest slump since 2013, gold is showing resilience, holding near $1,200 (Dh4,413) an ounce since late August and registering a small gain so far this month. The metal is getting support from signs of a sputtering rally in the greenback and indications — albeit tentative — of easing inflationary pressures in the United States.

For now, “weak shorts are starting to get nervous,” says Peter Hug of Kitco Metals Inc. The following points illustrate the case:

■ 1. Finding a Bottom? Gold is sticking to a narrow trading range of around $1,200 an ounce, even after holdings in bullion-backed exchange-traded funds plunged to their lowest in a year. Analysts expect gold to rise to $1,275 an ounce by the first quarter next year from $1,250 in the final three months of 2018, based on the median of forecasts compiled by Bloomberg.

■ 2. Desultory Dollar Gains in the greenback that bedevilled gold are showing signs of slowing. The Bloomberg Dollar Spot Index is down 0.8 per cent this month after reaching a more than oneyear high in August.

■ 3. Inflation Measures

A measure of US inflation unexpectedly cooled in August. If maintained, the slowdown would suggest little urgency for the Fed to speed up the pace of interest-rate hikes.

Recent producer and consumer-price data indicate “that inflation pressures aren’t as exaggerated as first expected, so there’s psychological relief that the Fed may take the foot off the gas pedal after the September increase”, Kitco’s Hug said.

■ 4. Short Squeeze

Hedge funds and other large speculators raised their bets on lower gold prices to a record last month, mainly because of a strong US economy and the outlook for higher interest rates.

Still, even with signs of stabilisation, the yellow metal will need a catalyst to start a full-on rally, said John LaForge, head of real assets strategy at Wells Fargo Investment Institute.