Unprecedented stimulus measures from governments and central banks mean that gold is embarking on what could be another decade-long bull market. Still, investors have to wait for the breakout, according to one market analyst.
In an interview with Kitco News, Adam Button, chief currency strategist at Forexlive.com, said that instead of buying the dip as the gold market churns within a two-month-long holding pattern, he is waiting for the breakout to jump into gold.
Button said that he is sitting on the sidelines right now as the market could see another leg down before it’s ready to break higher.
“The enthusiasm right now in the stock market is bordering on a mania. It’s an absolute party going on and everything is getting bought and that’s left gold sparkling a little bit less,” he said. “This is going to be the decade of the gold trade. I think it’s okay to miss the rally from these levels up to 1760. But I think you have to buy 1760.”
Although gold prices could struggle to find momentum in the near-term, Button said that he is watching the U.S. dollar and interest as the trigger for the anticipated breakout. His comments come as the U.S. dollar has been caught in a four-week downtrend.
Button added that he sees signs that the U.S. dollar is embarking on a bear market as Federal Reserve monetary policy and stimulus measure blow out the government debt.
“There is a great reason to sell the U.S. dollar,” he said. “Once American investors maybe get attached to that idea or that that dollar weakness trade gets to be a bit more of a mainstream kind of trade, then we might see that real big leg up in gold.”
As to how low gold prices could go as investors wait for the upside breakout. Button said that he would be worried if prices pushed back to $1,600 an ounce.
However, he noted that even if gold does fall below critical support, if the pattern from previous crisis continues to hold true, gold’s moment to shine will come as the economy picks up along with inflation.
“When we get back to growth, you still have ultra-high deficits and ultra-low rates, and that’s not going to change, especially the fiscal deficit