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Although the first quarter should represent the low in precious metals, one market strategist warns investors not to chase the market at current levels.
In an interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, said that she has been bullish on gold since March and is expecting prices to end the year much higher.
However, she added that there is a risk the precious metal could see one more washout before it is ready to rally higher.
"There's some pretty heavy resistance around $1,850. So, if you're trying to buy around $1830, it's a little bit dangerous," she said. "You want to make sure you have some hedges in place."
Garner added that she likes the idea of buying on dips and said there is the possibility gold retests support just below $1,800 an ounce.
Not only is the gold market finding strong fundamental support in a low interest rate environment, but Garner said that the precious metal is also entering a positive seasonal period.
"Late summer, early fall is usually a really good time of year for gold and silver," she said.
Looking at gold's fundamentals, Garner said that she doesn't expect the inflation threat to provide much more support for gold, pointing to the drop in raw commodity prices like the one in lumber prices. The lumber market has given back its gains after seeing a historic rally in the first half of the year. Garner said that she sees similar patterns across a broad spectrum of commodities from hog futures to copper.
However, Garner said that weak commodity prices raise the specter of deflation or even stagflation instead of an inflation threat. It is unlikely that the Federal Reserve will move quickly to tighten its monetary policy in this environment, she added.
Garner said that she expects the deflation threat to reveal itself later in the year as she expects oil prices to fall back to $50 a barrel. She explained that U.S. shale producers have been reluctant to increase oil production; however, with oil now trading above $70 a barrel, crude oil supply is starting to pick up again.
"Higher prices cure higher prices," she said. "Crude oil is going to be the last one to crash. And that's the one thing that really, when we talk about inflation, really hurts everybody."
Looking at gold prices, Garner said that if gold prices can push back to $1,900 an ounce by the end of the summer, then she would expect to see the yellow metal back at $2,000 an ounce by year-end.
Garner noted that once gold finds new momentum, the market is ripe to attract new speculative interest.
"A lot of speculators are net long, but they're holding very small positions based on what we've seen as a historically. So a lot of those people got out of gold at the start of the year have plenty of ammo to put it back to work as things start moving the right way," she said.
For silver, Garner said that the metal has been extremely quiet; however, like gold, she expects to see higher prices by year-end.
"Similar to silver, I don't think we can rule out one more test of the lows, but ultimately, I think we're going to see somewhere between $29 and $31 by the end of the year," she said.
By Neils Christensen
For Kitco News
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