Analysts Turn Bullish on Gold, But Beware

Investors piled into gold in June 2019, sending the precious metal to a six-year high.

All thanks to tensions with China, a more dovish Federal Reserve, and the latest “hard-hitting” sanctions on Iran after a U.S. drone was shot down. Remember, gold is a safe haven and a good store of value during times of a weaker dollar, slowing economic activity, and geo-tensions.

Analysts are Even More Bullish

Up 9.6% for June 2019, it was on pace for its biggest monthly gains in nearly two years with analysts at Credit Suisse noting we could see a potential test of $1,921.

Morgan Stanley said gold was the firm’s No. 1 commodity pick.

“Morgan Stanley’s forecasts of falling real rates and a bearish US dollar outlook, against an uncertain macroeconomic outlook, should lend significant upside to gold’s price through 2H19 and into 1H20,” they said, as quoted by CNBC.

UBS analysts increased lifted their three-month gold target to $1,430 from $1,380 an ounce.

“A few years and several false starts later, we think the macro backdrop started moving more convincingly in gold’s favor,” the analysts said, though they added that the route for gold is “unlikely to be a straight path higher.”  They still maintain gold will end the year under that $1,400 level, lifting their end-year target to $1,370 from $1,325 an ounce. Their end-2020 forecast was lifted to $1,450 from $1,350, and from 2021 to 2023, the strategists expect gold to end those years at $1,500, according to MarketWatch.

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Gold is Also Becoming Overbought

As UBS noted, it’s “unlikely to be a straight path higher” for gold prices.

At the moment, the metal is considerably overbought, which should not be ignored. In fact, since late May 2019, all gold has done is run higher in a straight line from $1,272 to a current price of $1,428. Despite the Fed, Iran, China, and economic headwinds, a correction is likely.

Technically, if we were to look at the price of gold, we can easily see the over-extension. 

The last time gold was this high was mid-2016.  It was just as overbought before gold aggressively pulled back from $1,418 to less than $1,150 in weeks.

If you’re going to trade gold, do it safely. Or you could get burned badly.

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