The big drop in gold prices may be over but the rebound is volatile. Gold futures surged 4.5% Friday to close at $1,371 an ounce--its highest price in two months, but today prices are retreating, down about $6 to $1,365 an ounce at midday.
“The worst of the liquidation in gold positions is over,” says Bill O’Neill, co-founder of LOGIC Advisors, a commodities consulting firm.
Investors including hedge fund managers John Paulson and George Soros had been liquidating positions in the popular SPDR Gold Trust ETF, which “really killed gold,” says O’Neill. Then last week that same ETF saw positive inflows for the first time since December, according to O’Neill.
Also last week JPMorgan analysts John Bridges and Anant Inani, in a note to clients, suggested that investors with a 4-5 week time horizon buy gold. They wrote that rising demand from India and China coupled with possible supply disruptions from South Africa in September should boost prices of the yellow metal.
“The market has much better tone that it did a month or two months ago, but nothing like it had a year or year-and-a half ago. It’s a little different animal right now,” says O’Neill.
He advises investors to watch currencies to get a handle on where gold prices are heading: weaker currencies like the Indian rupee recently and financial uncertainty tend to boost gold prices, says O’Neill.
Rising interest rates tend to have the opposite effect, but that hasn’t been the case lately, which is another good sign for gold. “It shows that the market has probably discounted… a 3% rate for the 10-year [Treasury],” says O’Neill. But “if rates really start to take off, it’s… certainly a drag on the market.”
Watch the video above to learn more about where gold prices are heading.
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