The gold market holds solid gains after jumping from a two-year low at the start of the month. However, one market analyst says the precious metal is overvalued when looking at the overall macroeconomic landscape. TDS analysts, on the other hand, expect a drop below $1,600 by the first quarter of 2023.
“Gold is overvalued, we wouldn’t be chasing gold at these levels”
Huw Roberts, head of analytics at Quant Insight, says gold prices are overvalued by 7.4%, according to their modelling. He states that, given the current macro environment, the fair value of gold is around $1,614. The comments came as gold prices traded at $1,756, up nearly 0.40% for the most recent day.
cryptocoin.comAs you follow, gold rose nearly 8% from its two-year low on November 3rd. “From our perspective, we wouldn’t be chasing gold at these levels,” says Roberts. At the same time, Roberts notes that he will not want to fade this rally just yet. Roberts also says he suspects the short-term influx from hedge funds is the most important factor behind gold’s excessive price action. Based on this, he makes the following statement:
It’s not the macro fundamentals driving this rally. It looks like position and flow. Our modeling shows that macro fundamentals are still important.
The rally in gold prices is due to the short closing
Positions in the futures market also seem to confirm QI’s modelling. Recent data from the Commodity Futures Trading Commission (CFTC) showed that gold’s rally was mostly driven by short closing. COT data shows money managers have bought 5 million ounces of gold in the last two weeks to cover their short positions. In the same period, hedge funds bought 1.7 million ounces in a bullish position.
Gold-backed exchange-traded funds also emphasized that there is no upward trend. As prices rose, SPDR Shares saw its Gold Shares (NYSE: GLD) holdings drop 4.6 tons. Roberts says it’s not just gold that’s overvalued. QI modeling shows that much of the commodity sector is overvalued.
“Mining stocks are also too expensive right now”
Huw Roberts also says that mining stocks are too expensive right now. Roberts suspects that shifting expectations that a relatively resilient U.S. economy could help the Federal Reserve land soft and avoid a recession as it aggressively raises interest rates makes cyclical assets attractive to some investors. Roberts also notes that QI modeling does not provide economic forecasts. However, he notes that he measures the current conditions and determines the fair value based on these factors.
“Gold prices will drop to $1,575 by the first quarter of 2023”
Analysts at TDS, on the other hand, say that gold prices have upside potential in the short term. However, the Bank first went down in yellow metal at the end of July. He also doubled his short bet in August. The bank expects the precious metal price to drop to $1,575 by the first quarter of 2023. However, he states that many are looking for prices to test the $1,800 resistance. In this context, analysts make the following assessment:
It is possible for a small increase in prices to turn into a significant CTA buying activity. Also, position risks in gold markets are still on the upside. This is likely to be an attractive setup for precious metal bears looking to suppress the rally. However, signs of depletion of CTA buying in interest rates and foreign exchange markets suggest that the probability of this scenario is diminishing.
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