Gold prices were solidly higher on Wednesday as the metal hit a 3-1/2 month high, remaining above the key support level of $1,300 an ounce.
Since the U.S. Federal Reserve Rate hike in December, the metal has managed to rally close to 6%. But Peter Hug, global trading director for Kitco Metals, is waiting for the road to fully clear.
"I am not a complete bull on this market yet. I would like to see a close above $1,322 to create more momentum to the upside- it has failed three times before so until it clears that level, I am still neutral at this level," Hug said on Wednesday
"I think the overnight news of China backing away from U.S. bond buying was the main catalyst to cause gold to ratchet higher."
But Hug is not buying into the China news just yet. "It's a lot of noise and I don't think there is more to the story, but it was enough to scare the market."
The veteran gold trader said that the metal is defying the odds and rallying in a scenario that would otherwise hinder its rise.
"I am constructive the gold market; you have higher rates, you have a strong equity market and it looks like U.S. growth will come in at 3% -- gold should not be at $1,320 an ounce, it should be below $1,200 based on the current scenario," Hug explained.
"The fact that gold is sitting at $1,315 indicates to me that there is an underlying worry to this market and big money has some of that allocation into gold."
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This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.