Gold Prices End The Week Above $1.300 But Can It Last?
(Kitco News)- Sentiment in the goldmarket appears to be shifting as prices hold on to critical support at $1,300an ounce, bouncing off fresh five-month lows at the start of the week.
However, some analystsare not convinced that the yellow metal has found its bottom just yet as themarket remains in a downtrend. Despite the push higher, prices have been unableto break above essential resistance points, ahead of next week’s shortenedtrading week.
Gold is ending the weekwith solid positive gains as markets digest the minutes from the May FederalReserve’s monetary policy meeting, which showed that committee members supportinflation moving past their 2% target in the near-term. Also helping goldprices is a resurgence in geopolitical uncertainty after President Donald Trumpcanceled the June 12 meeting with North Korea’s leader Kim Jong-un.
June gold futures sellted the week at $1,303.70 an ounce, up almost 1% from last Friday’s settlement.
While some optimism iscreeping into the marketplace, some analysts have said that they need to seegold prices push through its 200-day moving average around $1,307 before the expect to see investors test the waters again in earnest. For others, gold remainsin a clear downtrend until prices push above $1,325 an ounce, which is acrucial retracement level from the April high to this week’s low.
David Madden, marketanalyst at CMC Markets, said that it is difficult to get excited about gold asthe market faces an expected rate hike in less than three weeks.
“The price action hasbeen in a downward trend since mid-April and I don’t’ think we are going to seethat materially shift any time soon,” he said.
Even after the Fedminutes, the CME FedWatch Tool shows markets are pricing in a 90% chance of arate hike June 13, which analysts say is supporting the U.S. dollar even asbond yields push back below 3%.
U.S. Dollar Will Continue To Drive Gold Prices
Ole Hansen, head ofcommodity strategy at Saxo Bank said that he is bullish on gold in the near-termas the recent drop in U.S. 10-year bond yields below 3% could signal an end tothe recent rally in the U.S. dollar.
“Bond bears are beingsqueezed right now and if yields fall further then it will start to limit U.S.dollar strength,” he said. “That will be positive for gold.”
He added that goldcould also benefit from growing economic uncertainty in Europe.
“Gold prices in euroshit their highest level since September and this could help gold even in theface of a stronger U.S. dollar,” he said.
However, some analystsaren’t entirely convinced. Neil Melor, currency strategist at Bank of New YorkMellon, said that they expect further strength in the U.S. dollar as cracksstart to appear in the European economy.
“The downside potentialfor the euro is still significant,” he said. “If global interest rates continueto diverge -- if the U.S. is seen as the only game in town -- then I think youwill continue to see a stronger U.S. dollar even if bond yields continue to godown.”
Gold Investors Need To Pay Attention To WageGrowth Next Week
But for Mellor, it’snot the U.S. dollar that is the most significant factor for gold. He said thathe doesn’t see any potential for gold prices to push higher as inflationremains muted.
He noted that nextweek’s employment data, particularly the wage data, will be critical for goldgoing forward. If wages don’t show strong growth in May then inflationexpectations will remain muted, he said.
“I felt there was acase for gold at the start of the year when central bankers were talking abouta potential inflation overshoot, but right now I’m not sure. There is noinflation to speak of and it’s going in reverse in Japan and Europe,” he said.
Madden said that he isalso looking at wage inflation as this not only impacts inflation but willindicate whether or not the U.S. economy will continue to grow.
“The U.S. economy ispretty much at full employment, so it doesn’t matter how many jobs arecreated,” he said. “What matters is whether people are making more money andare they spending it?’ he said.
While next week’semployment number won't impact a June rate hike, Madden said that disappointingwage data will affect expectations in September and December. He added thatgold prices could benefit if investors cut back on their expectations for fourrate hikes this year.
Levels To Watch
While some investorsand traders are encouraged to see prices above $1,300 an ounce, ColinCieszynski, chief market strategist at SIA Wealth Management, said that he isnot convinced the market will hold this level.
Not only has gold beenunable to push above $1,307 an ounce, but he would need to see gold push above$1,325 to neutralize the current downtrend. He described gold’s recovery fromits recent five-month low as “feeble.”
“Even though bondyields have come off their highs the U.S. dollar is still rising. That thatwill be a major headwind for gold,” he said.
On the downside,Cieszynski said that he could see gold dropping to a range between $1,250 and$1,260 in the near-term.
Meanwhile, in a recentreport, commodity analysts at Scotiabank said that while positive momentum isbuilding, sentiment in the gold market is still strongly bearish as pricesremain below the 200-day moving average.
The Final Say
Next week starts on aquiet note as both London and American markets will be closed Monday. However,despite the shortened trading week, there is a full docket of economic newsthat gold traders will have to navigate.
Markets will receiveimportant consumer confidence data for May the day after the long week,followed by private sector employment numbers and the second reading offirst-quarter gross domestic product.
The major event of the week is on Friday withthe release of the May U.S. nonfarm payrolls report and manufacturing sectordata.
By Neils ChristensenFor Kitco News
Follow neils_C
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.