Gold Remains Above $1280 as the USD Reaches Target High
(Kitco News)- In this column a few weeks ago, I mentioned gold may continue to beunder pressure until we see the rising U.S. dollar reach a technical target of95 on the cash-settled index and I had assumed at the time, gold would be below$1280 when it was reached. However, I was pleasantly surprised to see the safehaven metal trading back above $1300 when it hit 94.97 earlier this week. The10-year Treasury Note plunging well below the 3% threshold since last Friday hasalso been supportive of gold and the yellow metal was able to manage a monthlyclose just above this critical level yesterday.
Furthermore,both gold and the U.S. dollar rose in unison on Tuesday, receiving safe haveninflows from euro zone investors while the yield on Italy's two-year governmentbond jumped from 0.8% to 2.7%. It was the biggest one-day jump for Italiantwo-year bonds since 1989. The political crisis in Italy spooked the globalmarketplace this week when the Italian Democratic Party (PD) called forparliament to be dissolved “immediately” in order to hold elections in Italy assoon as July. Sources from several of Italy’s main parties said they were infavor of fresh elections on July 29, following an inconclusive vote on March 4.The Italian economy is the third largest in the euro and has been anemic, whilethe country is also heavily in debt.
If thecrisis continues and leads to this election taking place, it will create moredoubt in the minds of investors on whether Italy keeps the euro as its currency.And if Italy leaves, it’s unlikely the euro could survive. This sentiment may spreadto other European nations and gold would likely draw significant safe-havenbuying along with the U.S. dollar. While the political uncertainties in theeuro zone continue or even increase, gold should remain in good demand as asafe haven.
Although therewas a strong bounce from critical support at 115 in the euro earlier this week,I would expect safe haven buying coming into both gold and the dollar tocontinue if the Italian situation is the catalyst which eventually breaks thisimportant level. The euro is down 7% against the U.S. dollar since thebeginning of February and it is now trading at a 10-month low.
Moreover, goldhas been soaring in Turkish Lira since the government withdrew its reserves of bullionfrom the Federal Reserve earlier this month. President Erdogan has asked allTurkish people to convert their dollars to Lira this week and there have beenrumors of a possible monetary collapse in the Lira. It appears Erdogan ispositioning himself to be able to seek his own power that would be contrary tointernational policy.
Gold stockscontinue to trade sideways with little interest and volume has slowed to atrickle on many of the resource stocks I own and/or follow, making illiquidjuniors difficult to sell. The GDX has continued to languish in a tight range between$21-$23 on historically low trade-weighted volume and tightening Bollinger Bands. Long periods of low volatility and shrinkingBollinger bandwidth usually leads to a big move in either direction and thecatalyst could very well be the upcoming Federal Reserve Open Market Committee (FOMC)meeting on June 12-13th.
Therefore, cautionis still advised in the gold complex until the market digests the contents ofthe speech from the FOMC meeting, which will be given by Fed Chair JeromePowell at 2:15 EST on June 13th. Immediately following the speechnext month, investors will be closely following the press conference as well formore clues regarding monetary policy. This continued lack of interest in goldstocks presents an opportunity to research your favorite juniors for desiredentry points and if you require assistance in choosing the best quality juniorsto invest, please stop by my website and check out the subscription serviceat http://juniorminerjunky.com/
By David ErfleContributing tokitco.com
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