Brian Dolan, chief market strategist at DriveWealth, was a guest in Benzingas PreMarket Prep last week. Among several other issues, including the Federal Reserve and Treasury Yields, the expert went into gold.
Talking about commodities and the wider market, the investor explained that oil was set to decline. Oil being sold fits in perfectly with perfectly with the whole risk-off environment. Its also indicative of an overall lower growth and demand outlook, and that could lead to the whole commodity space coming under pressure. This, of course, would not be supportive for U.S. equities or the energy sector.
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In this environment, many investors would expect gold to surge as it has been. When asked about the issue, Dolan said it seems likely that this run-up will continue, until, and only if the unwind and the risk positioning in the broader the broader stock markets and commodities spirals out of control [...]At that point, gold positions will tend to get liquidated alongside those other markets. So, investors that are long gold and/or gold producers should keep an eye on that, he explicated.
While the unwind remains relatively orderly and we are not having multiple percentage drops in successive days, gold is likely to continue to stay elevated, he continued, adding that gold is an extremely illiquid market, and clearly thats also another crowded trade. So, the long positioning there also raises the risk of a more severe unwind. So, if we are moving into the Summer months, and, unfortunately liquidity tends to dry up around most markets, and that kind of exacerbates moves and increased volatility.
So, again, Dolan warned people long gold and gold producers to keep their eyes open. On the short run, I can see further upside [...] But just be wary of the downside unwind, he concluded.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
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