Forecast: Why gold is likely to hit $1,650 soon

Commodities tend to thrive when monetary conditions are loose, added to that, lower interest rates and more quantitative easing can boost growth, which is good news for gold.

The yellow metal is a traditional inflation hedge, thus when conditions change that may benefit the economic outlook (and thus inflation) it can be positive for the gold price.

If gold can break above $1,630 then we may see it rise to $1,650-$1,660 in the medium-term.

The commodity market has staged a stunning rally this week after the EU summit.

The gains were broad-based, commodity indices including the Thomson Reuters/ Jefferies index rose by a stunning 7.5% by the middle of the week.

Commodities have been the big winners in the aftermath of the EU summit where Europe’s leaders took steps to try and solve the sovereign debt crisis including increasing the flexibility of the rescue funds and agreeing to create a banking union.

As we have mentioned in previous notes, $95 had been a big resistance level for Brent crude oil.

It pushed through this level with relative ease earlier this week and since then topped $100.

If we can get above here, then, $104.20 may act as the next major level of resistance, which is also the 50-day moving average.

Commodities have managed to extend gains, even though EURUSD started to fade by the middle of the week, due to expectations that central banks in the Eurozone and the UK would loosen monetary policy.

The writer is Emea Research Director at FOREX.com

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