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Gold is still ‘relatively cheap’ and could surge back toward its all-time high, strategist says

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A mark of 999.9 fine sits on hallmarked one kilogram gold bullion bars at the Valcambi SA precious metal refinery in Lugano, Switzerland, on April 24, 2018.

Stefan Wermuth | Bloomberg | Getty Images

One strategist believes gold is still a “relatively cheap” investment opportunity and argued that even if the price soon topped $1,900, it could still rise further.

Richard Kelly, head of global strategy at TD Securities, told CNBC’s “Street Signs Europe” Thursday that “gold had a phenomenal run up over the course of last year, and when that reversed I think it scared a few investors off.”

The spot gold price hit an all-time high of $2,063 per troy ounce in August last year but now stands at $1,877, according to Refinitiv data.

The gold price ebbed lower in the first few months of this year. This came amid sharply rising U.S. Treasury yields as traders started to bet that inflation would cause the Federal Reserve to hike interests rates and taper its accommodative monetary policy. Gold is traditionally seen as a hedge against inflation but any attempts by central banks to rein in inflation is usually bad for bullion.

Kelly also noted gold’s relation to the U.S. dollar. As gold is typically priced in dollars, then any fall in the greenback would usually lead to a rise in the price of gold.

And Kelly believes that the dollar, and even other major currencies like the euro, were now looking “rich” on a relative basis, suggesting a possible dip against the price of gold.

“Gold is relatively cheap so when you’re trying to think about that positioning, gold is definitely one that still has catch-up potential,” Kelly told CNBC.

Kelly added that even if gold were to reach $1,900, “or even above, that’s still an area that does have scope given what we’re seeing with policy rates, given what we’re seeing with inflation dynamics and just overall under-positioning in that side of things, that’s certainly a catch-up trade that can have more legs.”

In a note to clients this week, JPMorgan said institutional investors were ditching bitcoin in favor of gold. The cryptocurrency had started to gain a reputation as a kind of “digital gold,” offering protection from inflation.

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