Metals Expert: Gold Breakout on the Horizon

Since pushing above $1,300 in late August and then falling back below that level again in September, gold has been trading within a very narrow range and volatility in the market has remained low. But during an interview on CNBC Futures Now, metals expert Michael Dudas of Vertical Research said he sees a breakout on the horizon.

And he said he thinks the breakout could come sooner rather than later as the December Fed meeting approaches. Federal Reserve actions, along with continued wrangling over tax reform will likely increase volatility. That will spark a breakout. And Dudas said he thinks it will be on the upside.

With this low volatility, we think an event could spark it either way. We think it’s going to spark higher.”

Dudas described the current gold market as “eerily quiet.” Even so, the yellow metal is still on track for its largest yearly gain since 2010. Gold prices are currently up around 12% on the year. Dudas said he expects the gains to continue into 2018, with gold eclipsing the $1,400 mark. He cites two fundamental reasons for optimism.

A year ago at this time, the dollar was about to make a new high in January. Now, the dollar is in a pretty good trench – a downtrend – which we think will continue. In addition, we do think that inflation expectations, which have been muted, and the Fed is hoping and praying they can get those expectations higher – we think that will turn around in 2018, leading to higher inflation expectations, remaining low real interest rates. And that’s typically supportive for gold and silver historically.”

Some analysts believe higher interest rates could drag gold down because it will give the Fed the green light to continue pushing interest rates higher. Dudas takes a more fundamental approach. As Peter Schiff pointed out a podcast back in October, inflation is bullish for gold. In fact, inflation is one of the primary reasons to own gold.

After all, the main reason to buy gold is an inflation hedge. If you think there’s going to be more inflation, you buy gold. But perversely, the way the markets work now, you sell gold if you think there’s going to be more inflation. In fact, you buy the currency of the country that is experiencing more inflation, which is kind of counter-intuitive because inflation by definition is the currency losing value. So, if the currency is losing its purchasing power, why would you want to buy more of it?”

Dudas also expects silver to have a good year in 2018, with a target of around $19.20. That would represent a 16.7% increase from the current price.

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