Gold Records Six-Month Losing Streak - U.S. Dollar Continues To Weigh On Market
(Kitco News)- While the gold market is showing some resilience in thefinal trading day of September, analysts note that the market is remains stuckin a clear down trend as it notches its sixth consecutive monthly drop.
While off its lows, gold prices are preparing to end theweek and month in negative territory. December gold futures last traded at$1,195.80 an ounce, down 0.50% from the previous week. For the month, gold pricesare down nearly 1% from August
Since the downtrend started in mid-April gold prices havelost nearly 12%.
According to some analysts, gold is seeing its worst losingmonthly losing streak in two decades; the renewed selling pressure came afterthe Federal Reserve maintained its optimistic outlook for the U.S. economy andsignaled that it will continue to move forward with interest rate hikes throughto 2020. The Fed’s outlook was also reaffirmed during the week as economic datashowed the U.S. economy grew 4.2% in the second quarter.
While there were little surprises in Wednesday’s FederalReserve monetary policy decision, currency analysts noted that the U.S. dollarcontinues to be the most attractive asset among developed nations.
“At the end of the day you can’t get away from the fact thatthe Federal Reserve is the only major central bank that is raising interestrates,” said Neil Mellor, senior currency strategist at Bank of New YorkMellon.
Not only does the U.S. dollar remain strong, but Mellornoted that growing economic and geopolitical uncertainty, sparked by proposedmajor deficit spending in Italy is causing significant weakness in the euro.
“In this environment you still have to see value in the U.S.dollar,” he said.
David Madden, market strategist at CMC Markets, said that healso sees further strength in the U.S. dollar, which will weigh on gold.
“I don’t see any shift in the U.S. dollar’s uptrend and Ithink we could see it retest its August highs,” he said. “As a result I thinkwe have to expect that gold will retest its August lows.”
Not All Doom andGloom for Gold
Although gold remains in a downtrend, some analysts seepotential for the yellow metal as the market looks severely oversold.
Colin Cieszynski, chief market strategist at SIA WealthManagement, said that he sees some technical resilience in gold in thenear-term as it looks like the market creates a higher low from August’s priceaction.
“Technically, I think gold is due for a bounce” he said.“All the metals look pretty washed out and there is a lot of negativity pricedso we could see a bit of a relief rally.”
However, despite his short-term optimism, Cieszynski, saidover the long-term, gold will struggle to break out of its current range aslong as there is a strong bid in the U.S. dollar.
“I’m cautiously optimistic on gold with an emphasis oncautiously,” he said. “Gold is still in a sideways trend and even if you get abounce the price will struggle to break through $1,210 an ounce as long as theU.S. dollar remains strong.”
Ole Hansen, head of commodity strategy at Saxo Bank, is alsonot ready to count gold market out.
He noted that although the yellow metal fell to a six-weeklow earlier this week, that softness wasn’t seen in other markets, particularlysilver.
Gold’s sister metal is seeing significant strength as theprice rallies more than 2% Friday. December silver futures last traded at$14.710 an ounce, up 2.5% from the previous week.
This is silver’s second consecutive week of gains and themarket has ended a three-month downtrend.
“Gold’s weakness appears to be isolated so that could be anindication that there is underlying demand in the precious metals market,” hesaid.
However, Hansen said that gold still faces significantheadwinds.
“If gold is going to have a chance, then the U.S. dollarand U.S. equities need to stop rallying,” he said. Investors don’t see the needto build a rainy-day fund as markets are pretty much behaving themselves.”
Rising Inflation Will AlsoMake Gold Attractive
Ina recent interview with Kitco News, George Milling-Stanley, head of goldinvestments at State Street Global Advisors, said that rising inflationpressures is a critical factor that could help gold prices.
Heexplained that rising inflation will keep real U.S. interest rates in low tonegative territory as the Federal Reserve indicated that it is no hurry toraise rates faster than it has already signaled.
Whilethe latest economic data showed tame inflation pressures in August, marketswill see another key indicator next week.
Themajor event next week will be Friday’s nonfarm payrolls report and economistswill be eager to see if wages continue to rise after August average hourlyearnings saw its biggest increase in nine years. Economists note that risingwages will continue to push inflation pressures and expectations higher.
Levels To Watch
Althoughgold fell to a six-week low, the market is still trapped in a range betweencritical support at August’s lows at $1,160 and resistance at $1,212 and then$1,236.
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.