Potential For Gold-Price Rally Continues To Build - Saxo Bank
(Kitco News) -Although gold’s near-term fortunes lie in the hands ofthe Federal Reserve, one commodity analyst says that the market is buildingsignificant upside momentum.
In a report Wednesday, ahead of the Fed’s monetary policydecision, Ole Hansen, head of commodity strategy at Saxo Bank, said that theimminent rate hike -- the seventh in the current cycle -- has sapped investorinterest and demand from the gold market.
However, he added that with sentiment at such lows, the probability of higher prices has increased. Hansen’s comments come as goldcontinue to hover around the critical psychological level of $1,300 an ounce.
“The risk of another cat-out-of-the-bag rallyhas increased -- not least considering the dollar rally showing signs ofpausing following the recent run-up, US-China trade worries not going away, andrising inflation concerns keeping US real yields range bound,” he said.
Looking at investor interest, Hansen noted thatmoney-manager positions in futures contracts have dropped to nearly a two-yearlow, while holdings in gold-backed exchange-traded products declined by 34tonnes in May, dropping from a five-year high.
“These observations are all pointing towards animminent move in gold and while the downside may still be in play, the lowlevel of hedge-fund participation makes us believe that the direction thatcould receive most momentum would be to the upside,” he said.
However, gold upside potential ultimatelydepends on the Federal Reserve, he said. A hawkish hike, he said -- where theFed would signal more aggressive monetary policy action later in the year --would boost the U.S. dollar along with bond yields. Both are negative factorsfor gold.
On the flip side, a dovish hike -- where theFed signals a commitment to the status quo -- would drive gold prices higher onthe bank of falling bond yields and a weaker U.S. dollar.
“The key levels to look out for has remainedthe same for some time now: a sustained break below $1,286/oz would call intoquestion the rally from the December low while a move above $1,308/oz, the200-day moving average, is likely to attract renewed technical and momentumbuying from funds currently underweight in gold,” said Hansen.
By Neils ChristensenFor Kitco News
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