Gold Price to Hit $2,535 by the Summer as Its Breakout Is ‘Unambiguous’ – Insights from Midas Touch’s Florian Grummes

(Kitco News) - The gold market continues to consolidate after hitting record highs, and while the price has room to fall further, one market strategist said that the precious metal is ultimately headed higher.

In his latest market commentary, Florian Grummes, Managing Director at Midas Touch Consulting, said that gold’s rally above $2,200 an ounce has definitively ended a 13-year correction and consolidation phase as prices traded repeatedly between $1,900 and $2,075 an ounce.

“Regardless of short-term pullbacks or interim consolidations, this likely signifies only the beginning of the next major uptrend in the precious metals sector,” he wrote.

Although there is a risk that gold prices fall back to the initial breakout area around $2,075, Grummes said that he ultimately sees an initial price target at $2,535 an ounce. However, he added that these corrections should be considered a buying opportunity.

Grummes said he expects gold to hit his target within three months. Currently, the market appears to be holding initial support above $2,150 an ounce, which was the level that triggered significant selling in early December. April gold futures last traded at $2,166.20 an ounce, down 0.66% on the day.

“It can be assumed that after the two-and-a-half-month consolidation, the ongoing rally is unlikely to end after just three weeks. In case of doubt, the new uptrend may continue swiftly but with volatility,” he said.

One reason why Grummes is optimistic that a correction will be short-lived is because of how little attention gold’s breakout rally has received from generalist investors and mainstream media.

“The sentiment in the gold market is still neutral and does not pose an obstacle to higher prices for the time being,” he said.

Grummes added that with growing risks in overheated equity markets, and potential economic uncertainty, it's only a matter of time before investors start paying attention to gold as a safe-haven asset.

Of course, it's not all investors who ignore precious metals. While Western investors continue to pile into the “Magnificant 7” tech stocks, investors in Asian have been busy buying gold.

Grummes said that he expects Chinese investors to continue to buy gold as it follows the example set by the government. The People’s Bank of China has increased its gold reserves for 16 months straight, buying 12 tonnes of the precious metal last month.

“China dominates the physical gold market through strong demand from the central bank and the buying frenzy at the beginning of the Year of the Dragon. Through arbitrage trading, the paper gold market in the West is increasingly under pressure,” said Grummes. “Overall, the macroeconomic environment remains highly favorable for the gold price.”