Gold price is not in bubble territory yet - FXTM - Kitco NEWS

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(Kitco News) - The gold market has once again attracted the attention of the world as prices push to their highest level in history but the question a lot of people are asking is if the precious metal is in bubble territory?

Hussein Sayed, chief market strategist at FXTM, said that the gold market is seeing renewed momentum as a result of low interest rate and a weak U.S. dollar. He added that these are two factors that will continue to support gold prices at current levels.

Sayed said that it appears that the U.S. dollar has lost its “king status” in the global currency market as the U.S. dollar index trades at its lowest level in two years.

“Several factors are driving the Greenback lower, with real yields being the dominant factor as the Fed is likely to continue holding interest rates lower for a prolonged period of time.  For this same reason, Gold is today trading at a new record,” he said.

Although gold has hit an all-time high, Sayed said that prices adjusted for inflation are still nowhere near a record. Adjusted for inflation, the 1980 gold price peak at $835 is still the record holder. During that time inflation was in double-digit territory and U.S. 10-year treasury yields peaked at 16%.

Sayed said that inflation will continue to be the dominate factor to determine how far gold ’s rally goes. The U.K. firm continues to see potential for gold prices to push to $2,000 an ounce. In overnight trading action, August gold futures pushed to a high of $1,941.90 an ounce.

“With inflation expectations returning to pre-Covid-19 levels, the issue becomes how long the Fed can afford to keep inflation running above target to support their employment mandate,” Sayed said. “The longer they keep rates low and the higher inflation expectations go, the more likely we are to see gold benefiting, and I do not think this relationship will break any time soon.”

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2020-07-27 12:46:00Z
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