Another Bear Becomes Bull, CIBC Sees Potential For Gold To Hit $1,400

(Kitco News) - A former bearish bank is now jumping on the gold bandwagon, saying that it makes sense to own gold in an environment of growing market uncertainty and rising volatility.

“Our ratio analysis between gold and other commodity baskets (CCI), as well as the S&P 500 index, exhibits a well-defined relative outperformance picture, particularly in [Canadian dollar] terms,” wrote Sid Mokhtari and Roman Lutsiv, market analysts at CIBC, in a recent report.

Although there are technical indication that gold -- up 18% year-to-date -- is in overbought territory and due for a correction, the Canadian bank said that sentiment has shifted in the marketplace with the overall trend now up.

Thursday, April Comex gold futures settled the session at $1,258.20 an ounce, its highest closing price since February 2015.

“Calling a trend-shift is a difficult task, but it would be reasonable to suggest that charts have changed and so have our assumptions – technical objectives on the upside reside closer to 1300-1338-1400 levels,” the analysts said.

Although gold prices could fall back and test support as low as $1,130 later in the year, the analysts say that based on historical evidence, gold has technically bottomed and unlikely to test its December low at $1,045.40 an ounce.

“Gold peaked in 2011 and has declined by over 43% within a 45-mth down-trend. Historical corrections for gold show an average decline of 39% peak-to-trough within a 32.5-mth timeframe; in other words, both amplitude and duration of the current down-cycle in gold has already been satisfied,” the analysts said.

Aside from being one of the best performing commodities this year, the analysts noted that gold has also been one of the best performing currencies, thanks to increased global market volatility, which they are not expecting will diminish any time soon.

Despite gold’s run since the start of the year, the analysts said that the best may still be yet to come with gold demand being the strongest from late summer to late fall. However, they also highlighted that the next quarter could be challenging for the market as returns are historically lower between March and July, picking up in August to November.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C