The recent surge in momentum traders entering the gold market has raised concerns about a potential sharp decline in prices, according to HSBC Chief Precious Metals Analyst James Steel. In a recent interview with Yahoo News, Steel highlighted the influx of extraneous players who are looking to hedge their equity exposure, rather than focusing on the intrinsic value of gold.
Steel cautioned that the sudden influx of momentum traders could lead to a swift downward correction in gold prices, as these traders may not have a deep understanding of the fundamentals of the market. He also pointed out that historical high prices for gold, adjusted for inflation, are much higher than the current levels, suggesting that the current price may be misleading.
Despite the potential for a pullback in prices, Steel emphasized that central banks continue to show a strong interest in gold, with a significant portion of mined gold going into their reserves. He noted that while some central banks have been selling gold, the overall trend is towards continued buying, albeit at a more measured pace.
Steel also addressed the unusual trend of gold and the U.S. dollar moving in tandem, which he attributed to elevated risk in the market. He believes that in the long run, this correlation is unlikely to persist.
While HSBC anticipates some selling pressure on gold in the near term, they see a floor to the downside, supported by geopolitical risks and sustained central bank demand. Despite the potential for fluctuations in prices, the underlying factors suggest that gold will remain at historically elevated levels in the coming months.
