Gold prices are set to spring higher after more than a month of moving sideways, according to one analyst.
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Drivers include a positive technical backdrop and the likelihood of sustained low interest rates in the world's largest economies that may prompt investors to seek better returns in other "safe haven" investments.
Gold has “worked off the momentum, sentiment and positioning extremes seen at the peak and looks set to resume its uptrend” wrote Laurence Balanco of Hong Kong-based capital markets and investment group CLSA Ltd.
TickerSecurityLastChangeChange %GLDSPDR GOLD SHARES TRUST – EUR ACC182.58-1.33-0.72%
Gold topped out at $2,051 an ounce on Aug. 6 and four trading days later plunged more than $100 to around $1,935. The precious metal has spent the last five weeks trading in a tight range between $1,900 and $2,000.
More recently, price action has managed to break the downtrend off the August high while also holding above the 50-day moving average.
“Price action is now pricing the apex of this pattern, and something has to give,” Balanco wrote. He thinks a close above $1,966.60 would confirm a breakout to the upside that targets $2,185 to $2,200, up as much as 12% from the $1,960.20 where the precious metal settled on Wednesday.
The upbeat technical backdrop is getting an assist from monetary policy. The Bank of Japan on Thursday held its key rate at -0.1% and warned the economy remains in a challenged state, but is showing some signs of recovery. The Bank of England also kept policy on hold on.
The announcements come a day after the Federal Reserve held its benchmark interest rate at a range between 0% and 0.25% and said it expects to keep rates low through 2023 while navigating the U.S. economy through its sharpest slowdown of the post-World War II era.
The central bank put into place the policy strategy announced last month that would let inflation run above its 2% target for some time.
“We would look at adding new long gold positions,” Balanco said.