Gold's Time To Shine As Dollar Loses Its Luster - Analysts
(Kitco News)- The gold market has been fairlyresilient in the face of a three-week rally in the U.S. dollar and now thatmomentum in the greenback is starting to weaken, analysts say that gold has an opportunityto push back to the top end of its trading range.
Ending a three-week losing streak, goldprices are looking to close the latest week with modest gains. June goldfutures last traded at $1,321.30 an ounce, up 0.5% from the previous Friday.
Meanwhile, silver is starting to make amove against gold as it sees solid gains for the week. July silver futures lasttraded at $16.75 an ounce, up 1.4% from the previous week. Although stillelevated, the gold/silver ratio has dropped from its recent highs to hoveraround 79 points, according to the latest data on Kitco.com. Silver has had animpressive run since the start of the month, rising more than 4% after hittinga five-month low.
Turing back to gold, according to somecommodity analysts, the precious metal is getting a modest boost from a weakerU.S. dollar as inflation, while ticking higher, does not support aggressiveFederal Reserve monetary policy tightening.
The latest Consumer Price Index report,released Thursday, showed that annual core inflation, which strips out volatilefood and energy prices, increased 2.1% in April, less than economists wereexpected.
“If inflation is stalling, the Fedwill have no chance in hiking four times this year. Furthermore, their messagelast week was one in which they implied they will allow inflation to run hotrather than hike four times,” said Bill Baruch, president of Blue Line futures.“If this data continues to slow, the third hike will then come into question;this would be one of the many catalysts that could send Gold above $1,400 byAugust or September.”
The Gold Market Has Fundamental Support
Fawad Razaqzada, technical analyst at City Index, said with momentumfading in the U.S. dollar, he expects gold to push higher in the near-term. Henoted that gold, compared to other currencies has held its own against the U.S.dollar. Not only has gold managed to hold critical psychological support above$1,300 an ounce but it also held its 200-day moving average, unlike the euroand the pound.
Razaqzada added that gold has also been resilient in the face of astronger equity markets. He noted that the S&P 500 has rallied 5% after itbounced off its 200-day moving average at the start of the month.
“Gold’s resiliency shows that there is fundamental support in themarketplace that will keep prices above $1,300 an ounce,” he said. “When anasset class shows relative strength then you have to pay attention.”
While gold has seen lacklustre safe-haven demand, Razaqzada said thatsentiment could start to shift as investors pay more attention to theflattening yield curve.
Currently, the spread between two-year and 10-year Treasury yields hasfallen to its lowest level since 2007. Many economists have noted that aflattening yield curve raises the threat of a recession, and could weigh onfragile equity markets, giving a further boost to gold prices.
Gold Not Out Of TheWoods Yet
Despite the bounce off critical support, gold still has to clear a fewhurdles to attract new momentum flows. Lukman Otunuga, research analyst at FXTM,said that gold needs to push above resistance at $1,324 an ounce to signal amove to $1,340 and back to the top of its well-established range.
“With a softening Dollar empoweringGold bulls, further upside could be on the cards if prices are able to conquerthe $1324 level,” he said.
Scott Grecas, marketanalyst at Long Leaf Trading, said that he is near-term bullish on gold asmomentum shifts in the marketplace, but he added that the U.S. dollar is notexpected to drop sharply anytime soon. He said that the greenback shouldcontinue to find support from a positive equity market, which continues to seestrong first quarter earnings season.
Grecas explainedthat gold is not expected to break out of its near-term range anytime soon asoption markets are only pricing in an $18 range for the yellow metal in thenext few weeks.
Even if gold isunable to retest its recent highs, Christopher Vecchio, senior currencystrategist at Dailyfx.com, said that he doesn’t think U.S. dollar momentum willlast. He added that he prefers to buy gold as a long-term investment on dipsaround $1,305 an ounce.
“I don’t thinkmuch has changed for gold and until we break below March support at $1,302, Iwill continue to maintain my bullish outlook,” he said. “The U.S. dollar hasfound some recent momentum but my budget deficit concerns have not changed andI think this will be an issue later in the year.”
Grecas also seesless long-term support for the U.S. dollar because of the deficit issues.
The Final Say
Because ofgrowing concerns over the U.S. economy, in a flattening yield curveenvironment, economic data are expected to have more impact on markets than inrecent weeks. Next week the economic calendar will be laden with importantreports with April’s retail sales figures as the highlight.
The market will also receive regionalmanufacturing data for May and housing construction data for April.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.