Two Banks See Post-FOMC Upside Potential For Gold Prices
(Kitco News) - Gold is poised to climb in the months ahead despite anotherU.S. interest-rate hike on Wednesday and prospects for further monetarytightening, said two banks in research notes Thursday.
“Followingthe seventh U.S. rate hike this cycle and with the promise of two more beforeyear-end, I see the potential for the gold focus turning more supportive,” saidOle Hansen, head of commodity strategy with SaxoBank.
Suki Cooper, precious-metals analyst with Standard Chartered,was also upbeat on gold. She commented that the upgrade to inflationprojections were modest, and Standard Chartered strategists noted the Fed isdeep into a tightening cycle, with limited scope for U.S. rates to move higherrelative to the euro zone.
“Gold price risks are skewed to theupside, in our view, despite the hawkish FOMC meeting yesterday,”Cooper said.
Further, Cooper commented that the European Central Bank’sdecision to start winding down the bond-buying program known as quantitativeeasing should underpin the euro in the foreseeable future. Gold has a tendencyto move with the euro and inversely to the U.S. dollar.
“FOMC meetings have marked thecycle lows for gold, as prices have softened in the weeks before the meeting,but have tended to recover thereafter,” Cooper said. “We continue to expectgold prices to test five-year highs in Q4 2018.”
Hansen said he looks for the U.S. dollar to run out of steam.He also predicted that the U.S. yield curve will continue to flatten as short-termyields rise while long-end prices stay supported, all due to emerging-marketworries and trade wars.
“Even if bond yields move higher, rising inflation expectations may keep realyields range-bound...,” Hansen said.
Hansenand Cooper both cited low bullish hedge-fund positioning as a favorable factorfor gold. This recently was near a two-year low, Hansen pointed out. Often whennet-bullish positioning is at low levels, market participants see this as asign that there are potential buyers not currently in the market, andvice-versa. Further, the two analysts also pointed out that gold holdings inexchange-traded funds fell recently.
“In line with previous FOMCmeetings, speculative positioning had been scaled back ahead of the Junemeeting, but positioning was at its lowest ahead of an anticipated rate hike,with the exception of the December 2015 meeting,” Cooper said. “Speculativepositioning was lighter than it was ahead of the March FOMC meeting (the latest25-bps hike) and ahead of the widely anticipated December 2017 hike.”
However,Hansen said, gold needs to clear its 200-day moving average around $1,308 anounce in order to attract renewed “paper” demand through futures and ETFs.
Spotgold Thursday traded as high as $1,308.90 an ounce, although it backed off to$1,304.40 as of mid-morning. This was still a gain of $5.05 for the day.
“Abreak above $1,308/oz could see prices initially return to an area between$1,323/oz. and $1,333/oz,” Hansen said.
Meanwhile,Cooper added that yet another potential source of support for gold is a goodmonsoon season in India. This tends to boost incomes in agricultural areas, inturn meaning Indians living in rural areas have higher incomes to spend ongold.
By Allen SykoraFor Kitco News
Follow @AllenSykora
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