Futures Now

Gold volatility 'breakout' coming soon to ‘eerily quiet’ market, metals expert says

The bull case for gold and silver, following an unusually calm year
The bull case for gold and silver, following an unusually calm year

Gold's trading activity has been unusually calm this year, but that may be about to change.

Metals expert Michael Dudas of Vertical Research sees volatility slithering back into the "eerily quiet" gold market — with a "breakout" potentially in the cards as the December Federal Reserve meeting approaches and as lawmakers battle over the tax reform package.

"It's tough with the events coming up — whether it's the Fed or tax reform which is very, very important. I think that could lead to volatility," Dudas said Tuesday on CNBC's "Futures Now."

Gold, which is on pace for its largest yearly gain since 2010, has been mimicking the atypical low volatility environment of the stock market. Gold prices are up more than 12 percent this year.

The big question: Could a volatility surge have a positive effect on the precious metal?

Dudas says yes.

His 2018 year-end target calls for gold to hit $1400, an 8 percent gain from current levels. According to Dudas, higher inflation expectations in 2018 should be strong enough to push gold prices even higher.

But he cites a scenario that could lead to a temporary breakout to the downside.

"Tax reform is likely to sneak through, and I think that could give a nice pop to the markets. So, gold would trade down," said Dudas. "Longer term, that extra investment, extra demand and capital spending could lead to rising wages [and] rising inflation expectations. So, actually, it could be a backdoor positive."