(Kitco News) – Record-high equity markets remain the sector to watch as a correction could be the catalyst needed to push gold out of its narrow trading range, according to one market analyst.
While gold remains resilient with prices holding above its 200-day moving average, Fawad Razaqzada, technical analyst at Forex.com said that he can’t get excited about gold until it pushes above the October high at $1,306 an ounce. However, he added that it could only be a matter of time before this happens.
Gold futures have struggled Thursday to gain momentum as the U.S. government pushes forward with its tax cut and reform legislation. The Senate is moving closer to putting its bill to a vote, which is providing further momentum to equity markets.. February gold futures last traded at $1,283.80 an ounce, down 0.19% on the day.
“I wouldn’t touch gold right now, but I think there is reason to be bullish in the long term,” Razaqzada said. “Eventually, investors are going to realize that equities are overvalued. Everyday risks build for an equity correction and that is good for gold.”
Razaqzada added that the risk of an equity-market correction is probably helping gold remain in its current trading range. He said that he wouldn’t be surprised if people were slowly buying gold so they are not completely taken by surprise when the inevitable happens.
On the downside, Razaqzada said that investors need to watch $1,270 an ounce. A clear break of that support level could create a sharper selloff towards $1,250 in the near term.
However, he added that even if there are risks of a selloff in the near term, he would look to buy dips rather than sell rallies.
“The U.S. dollar remains in a downtrend and I don’t think that is going to change,” he said. “I am expecting that gold is going to end its second year with positive gains, so I think the bottom is in and right now we are consolidating and building a base for a long-term rally.”
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