Market strategist: $4,000 for gold and $50 for silver in sight

A market strategist said that the monthly consolidation in the gold market has frustrated many investors, but for those who have been waiting to enter the market, now may be the time.

On Aug. 28, Michele Schneider, chief strategist at MarketGauge, said it was not yet known how high gold prices would rise. Last week she expected gold prices to top $3,500 an ounce soon.

"We have been waiting for the spark to ignite gold and when we look back we will see that now is the time," she said. "From a technical point of view, the longer the consolidation phase lasts, the more likely a breakout is. I would say $3,800 to $4,000 is very realistic, not too much of an exaggeration, that could be my next reasonable target and then we see some profit taking. Even at these price levels, investors don't miss out. When investors start buying the rally (buying at these important breakouts), a parabolic move occurs."

Not only did gold hit an all-time high, but Schneider said she was looking forward to strong follow-up momentum after last week's sharp rally. Last Friday, gold prices hit their best weekly close ever. Sure enough, spot gold hit a new high of $3,546.67 an ounce on Wednesday (September 3).

Mr. Schneider explained that gold's new momentum comes at a time when the Federal Reserve is signalling a shift in monetary policy. This was highlighted by Federal Reserve Chairperson Jerome Powell's recent speech at the annual seminar of central banks in Jackson Hole, in which he said a shift in the balance of economic risks could justify monetary policy adjustments.

"Powell has made it clear to the market that he is not overly concerned about inflation falling back to 2 per cent and that he is now more concerned about a slowdown in the economy and labour market," she said.

Ms Schneider said the Fed's retreat from its focus on inflation had added to growing concerns about the purchasing power of the dollar, noting that global investors and sovereigns appeared to be losing faith in the dollar in favour of gold, thus re-establishing gold as the world's currency.

"What we're seeing is a general lack of confidence that the Fed will do what it needs to do, that the government knows what it's doing," she said. "People are flocking to gold because everyone is worried about fiat currencies."

Gold prices are strong, while silver prices are more volatile, attracting some profit-taking.

Despite the volatility, Schneider said silver remains an attractive investment and she expects it to continue to outperform gold through the end of the year. She said the key to silver is the gold-silver ratio, which is holding its initial support level above 86 points. Looking ahead, Schneider said,She expects the ratio to fall below 80 points, which could push silver prices to a record high of $50 an ounce.

She said she remains bullish on silver because it has become a key factor in the global energy transition.

"Silver is relatively cheap right now, I think it's really easy to see $50," she said. "So it's not just gold that's going up, silver is still undervalued relative to gold."

Daily chart of spot gold, source: Internet

Beijing time on September 3 at 11:59 spot gold, quoted at $3530.65/ounce