Barani Krishnam a market analyst from Reuters stated that the change in gold prices depends almost entirely on one thing: the dollar.
The value of gold, like that of any commodity, is determined by supply and demand. And in the case of precious metals, the supply of which is invariably limited compared to other commodities, an additional layer is applied: the supply of money. It determines the value of currencies like the dollar.
The currency posted 17-year highs in March, trading at 103,960.
The dollar index tracks the evolution of this currency against a basket of six other major currencies. The dollar held strong afterward as stocks tumbled at the height of coronavirus fears. It created a chronic need for cash to cover equity margins. Consequently, Gold fell to 4-month lows at $ 1,451.00.
Now, the dollar index records 27-month lows, trading at 93.047, hit by the collapse of the yield on US 10-year Treasuries. Also, the issuing of more than $3 trillion in coronavirus relief funds by the United States since March, hurts the value of the currency. Investors fear about the state of America’s balance of payments.
The dollar index could dive below 90 in the next months
Spot gold, which indicates the metal available for immediate delivery, reached record highs at $2,069.30 last Friday. Krishnam believes that gold’s next record will be at around $2,150 an ounce.
Given the continued decline in the dollar and the virtual rise in gold $2,150 would be a feasible short-term target on COMEX, possibly before the end of this month, he stated. Based on recent market focus and activity, this will likely be the case for the December contract rather than the upcoming October or spot gold, continued the market analyst.
AG Thorson, an expert on the study of gold, assumed that a continued fall in the dollar index below 92 could trigger gold’s move above $2,100.
Sunil Kumar Dixit, an independent precious metals analyst, has said that gold shows the measured Fibonacci retracement levels since it hit all-time highs recorded in 2011. The precious metal reached the level of $1,920 compared to the 2015 lows of $1,046.
Dixit added that this represents a 123.6% retracement level, which is already rare. It has signaled the metal’s next rise to $ 2,127. However, optimists are likely to mark the $2,150 level as a very possible case, the analyst cited.
Eli Tesfaye, a precious metals strategist at RJO Futures in Chicago, said he expects the dollar index to plummet below 90 in the coming months. It will drive gold toward highs well above current levels. Lots of laggards will turn to gold now and try to drive the market, Tesfaye stated. The strategist also made a forecast for silver.
Analysts also forecast that silver prices could reach record highs. The precious metal is expected to exceed $30 next week. By the next month, silver rates could move as high as $41.