The head of the CSI Commodity Equity Index strategy at Sheng Bao Banks stated that although gold has lost some momentum, there is almost no bearish sentiment in the market.
Despite gold and silver being trapped in a consolidation phase at high levels, one market analyst remains bullish on metals for the long term.
Ole Hansen, head of commodity strategy at Saxo Bank, released a report on Tuesday stating that traders are taking a breather after the price of gold rebounded nearly $250 from its low point in February to above $2450 last month.
Hansen added that despite gold losing some momentum, there is almost no bearish sentiment in the market as investors and fund managers are not eager to profit take. He explained that many hedge funds poured into the gold market when the price was still below $2200. This sentiment helped gold maintain solid support at around $2300.
He said in the report, "It is obvious that the main driving force behind the rise in gold prices in February and March came from fund management companies such as strong demand from hedge funds. They joined the upward trend in the early stages, so the prices are currently above the level that forced them to reduce their risk exposure during the current correction stage, and they are not forced to adjust (sell) positions."
Hansen added, "Entering the market earlier and buying at lower levels helps explain why the current volatility of gold is relatively low, while for other metals such as silver, platinum and copper, speculators joined later and bought at higher prices, making them more vulnerable to profit-taking by longs and facing deeper pullbacks."
Looking ahead, Hansen said one of the biggest supports in the market comes from gold's role as a safe-haven asset and its hedging function against market risks when the global economy continues to be affected by geopolitical uncertainty.
Meanwhile, Hansen said the increasing sovereign debt is also forcing central banks around the world to continue diversifying their forex reserves away from the dollar.
As for how long the long-term consolidation of gold and silver will last, Hansen said it depends on the Fed. He pointed out that while retail investors and central banks in Asia continue to support the market, it still lacks a key ingredient - investor demand.
"ETF investors have limited interest in gold and silver, and have been net sellers since the 2022 FOMC began aggressive rate hikes, as the opportunity cost of holding these zero-yield metal investments has increased. Until the Fed cuts rates, this cost will remain low, and ETF demand may rebound."