(Kitco News) - Even if gold has had a good start to the year, it should be performing better under current market conditions, suggests one Mitsubishi strategist.
In the first two trading weeks of the year, gold got a safe-haven boost that pushed prices back above $1,100 an ounce. During that period, investors flocked to the yellow metal as equity markets were very volatile, oil prices fell below $29 a barrel, and concerns over China’s struggling economy prevailed.
However, according to Jonathan Butler, Mitsubishi’s precious metals strategist, it is important to ask why gold has not performed better given everything that is happening.
"10-year U.S. Treasury yields are down 25 basis points, the dollar has been in no-man’s land and the Fed Funds futures market is pricing in the greatest probability of the next rate hike happening only in November,” he said in a research note Monday afternoon. “In this environment, it might reasonably be asked why gold has not done better than the 2.5% appreciation in dollar terms that it has achieved in the first two weeks of the year."
U.S markets were closed Monday in recognition of Martin Luther King Jr. day. February comex gold futures settled lower by $1.80 at $1,088.90 an ounce.
Even the latest CFTC data – covering the week through January 12 – showed that optimism returned into the gold space, but Butler said he is not too impressed.
"Despite a substantial cut to gross shorts, substantial bearish bets endure and if equities and the dollar turn higher, bullion could come under renewed selling pressure," he said.
Silver, as an industrial metal, has struggled more than gold so far this year due to its closer ties to oil prices, and Butler said he expects this to continue.
"Although crude could bounce back up in the near term on opportunistic buying, the momentum over the coming weeks still appears to be downwards, which will continue to drag industrial metals lower."
March comex silver futures, in electronic trading, were last quoted up 0.32% at $13.94 an ounce.
By Sarah Benali of Kitco News; sbenali@kitco.com
Follow me on Twitter @SdBenali
