Global Growth Concerns To Drive Gold Prices Near-Term - Analysts
(Kitco News)- Optimism in the gold market ispicking up as prices bounced off critical support to end the week in positiveterritory.
However, someanalysts are warning investors to not expect too much excitement in thenear-term as markets will see a shortened trading week as American investorscelebrate Thanksgiving. December gold futures lasttraded at $1,223.10 an ounce, up 1% from the previous week.
According to analysts, thecritical resistance level to watch next week will be the October high at$1,246. Greg Harmon, founder of Dragonfly Capital, said that a push above thatlevel would represent a strong technical move in the marketplace, signaling atrend reversal.
Harmon added that while he seespotential for the precious metal in the near-term, it is difficult to getextremely bullish as it remains in the sideways pattern.
Phillip Streible, senior marketanalyst at RJO Futures said that he is also watching the $1,240 level nextweek. “Until we get above there, the other shoe can still drop and prices couldeasily fall back below $1,200 an ounce.”
Global Growth Concerns Growing
According to analysts, gold isgetting a boost this week as concerns start to mount about the health of theglobal economy. The growing threat of weaker global growth is causing somemarket participants to pare back their equity investments in search forsafe-haven assets like gold.
The shift in expectations cameafter Federal Reserve Chairman Jerome Powell said at an event at the FederalReserve of Dallas that although the U.S. economy remains healthy, he seespotential risks ahead.
Weaker growth expectations arealso impacting the U.S. dollar and interest rate expectations. Although aDecember rate hike is seen as a sure thing, markets are lowering theirexpectations of rate hikes in 2019.
Mike McGlone, senior commoditystrategist at Bloomberg Intelligence, said that an end-game to the FederalReserve’s tightening cycle is what gold needs to rally as the precious metalremains in a compressed trading range.
“Gold is ripe to rally,” hesaid. “[Gold is seeing] the narrowest 24-month Bollinger bands for the longestperiod in 16 years [which] indicate the metal's upside. For gold to decline, itwould likely need the dollar to remain above multiyear highs, plus a decline inequity-market volatility.”
Ryan McKay, commodity strategistat TD Securities, said near-term sentiment on global growth could sour,boosting gold prices, but he added that he thinks markets are being a littletoo pessimistic.
“We expect that long-term growthfundamentals will remain in place,” he said. “We don’t see growth threatsmaterializing until the second half of 2019, which should provide some supportfor gold and other precious metals.”
Economists at Nomura also don’tsee a significant risk for global growth.
“We remain sanguine that anyglobal slowdown in coming months will not be that acute, but downside risks toour base case have nevertheless increased in recent weeks,” the economists saidin a recent report.
Fawad Razaqzada, technicalanalyst at City Index, said that gold investors should pay close attention toU.S. economic data next week as that could determine the precious metal’s nextmove.
“If we see further evidence ofslowing in the U.S. economy then I think we will see gold push higher,” hesaid. “It looks like the market wants to test the October highs again.”
U.S. Housing Market In The Spot Light Next Week
Although investors will probablybe paying more attention to their turkey dinners and Black Friday deals, U.S.housing data will be released next week, with analysts saying that the reportscould potentially add some volatility toan already skittish marketplace.
The U.S. housing market has beenin a downtrend for the last seven months, seeing lower construction and homesales this year. According to economists, rising home prices and highermortgage rates due to rising interest rates are pushing many first-time homebuyers out of the market.
Brexit, Still A Concern
Outside of the U.S., analystshave said that escalating Brexit concerns, which are dragging down Europeanequity markets, should also help support gold prices in the near-term.
Earlier this week U.K. PrimeMinister Theresa May presented her Cabinet with a draft Brexit agreement, whichwas received with some harsh criticism as two senior members of the U.K.government resigned. May also faces growing threats to her leadership asMembers of Parliament call for a confidence vote.
Economists at Nomura said thatthis uncertainty will remain a headwind for the nation’s economy.
“There is another month to go before the dealgets through the hurdles of an EU summit and more crucially the U.K.parliament. That is likely to mean another decline in business investment inthe final quarter of this year and possibly even early next year. That wouldmake it a full year or more of declining business investment, the first timethis would have happened since the global financial crisis,” economists said.
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. |