Gold as an investment vehicle is more often than not driven by the opposing forces of persistently high inflation and central banks raising rates as a response.
In 2022, this scenario played out, with gold initially recording highs; however, it has since fallen off and, at the time of writing, is trading at $1,787.91 an ounce.
Nevertheless, senior commodity strategist at Bloomberg Intelligence, Mike McGlone, tweeted on August 4 that it’s just ‘a matter of time’ before gold hits the $2,000 level due to limited production versus the unlimited production of fiat currencies.
“The limited production of gold vs. unlimited supply of fiat currency is a top reason the metal appreciates over time, and the extended consolidation between $1,700-$2,000 an ounce appears as base building. We see the metal more likely to breach the upper end of the range than sustain below.”
McGlone further elaborated that it takes time for the precious metal price to reflect the gains it sees in other foreign currencies, like the gain it has seen in the Euro currency.
“Gold appears more likely to resume its enduring upward trajectory and breach resistance at around $2,000 an ounce vs. sustaining below $1,700 support. Guidance may come from the metal denominated in the euro, which reached a new high in March. Typically, it’s a matter of time in dollar-based gold to follow new highs in other major currencies.”
Moreover, from the technical analysis side, McGlone expressed his view the metal price is being restrained by the aggressive rate tightening by the Federal Reserve (Fed).
“Our graphic shows the metal consolidating within a tight cage and a base forming around the first stop on the way up in 1Q20 at about $1,700. The most aggressive Fed tightening in 2022 since the 1980s has contained gold, and it’s a matter of time before rate hikes subside, letting the metal resume its path of least resistance upward.”
“It’s a question of what forces might pressure gold below $1,700 in 2H vs. its normal tendency to advance. Our bias tilts toward the latter.”
According to the commodity expert, the run-up gold has had in 2022 is just the beginning. With the logic of finite supply behind it and a technical setup indicating a boom in price, it seems as if the next leg up in gold price could be inevitable.
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