Is Now The Time To Buy Gold As Six-Week Losing Streak Ends?
(Kitco News)- For some commodity analysts, this could be the perfect timeto buy gold as it looks like U.S. monetary policy will be less supportive ofthe U.S. dollar going forward.
Gold’s four-month downtrend appears to have come to a haltfollowing what economists are describing as neutral to dovish comments fromFederal Reserve Chairman Jerome Powell. The yellow metal is seeing its bestweekly gains since late-March, ending a six-week losing streak. December goldfutures last traded at $1,213.5 an ounce, up more than 2% from the previous week.
Gold appears to be leading the pack as silver continues tounderperform in the precious metals pace. September silver futures last tradedat $14.795 an ounce, up more than 1% since last Friday.
Bill Baruch, president of Blue Line Futures, said that hehas turned outright bullish on gold and looks for momentum to push prices to$1,250 an ounce before it starts to fade again. He added that his firm isrecommending to their clients to go long gold aggressively and to monitor theposition closely.
“This is the move in gold we have been waiting for,” hesaid. “We are telling clients to buy as much gold as they are comfortable withand then we continue to ask ourselves on an hour-by-hour, day-by-day basis: isthe trading doing what it’s supposed to do? As soon as that answer is “I don’tknow,” is when you start reducing your position. However, until then we pressthis market.”
Monetary PolicyExpectations Are As Good As It Gets
Gold’s new rally was sparked after Powell provided littlenew guidance on future monetary policy. While he said that the U.S. economy hasstrengthened substantially, he was relatively neutral on the current pace ofmonetary policy.
He noted that “there does not seem to be an elevated risk ofoverheating.”
David Madden, market strategist at CMC Markets, said thatthis could be as good as it gets for U.S. monetary policy. He added that he sawthe speech as “putting the brakes” on monetary policy expectations.
“The message was: everything is steady as she goes and thatcould be good for gold,” he said. “I think because of the strong economy,markets were expecting to see something more hawkish.”
Simon Derrick, managing director of BNY Mellon, said thatthe latest comments from the head of the U.S. central bank add to an alreadyshaky environment for the U.S. dollar. He added that the comments could signala peek in the U.S. dollar and a bottom in gold prices.
Investors Are JustWaiting For The Spark To Ignite A Gold Rally
Ole Hansen, head of commodity strategy at Saxo Bank, said itis going to take a material change in the U.S. dollar expectations to push goldprices higher. However, he added that when it happens, there won’t be much tostop the yellow metal from propelling higher.
He explained that historical high bearish speculativepositioning in gold represents the markets most significant factor that willdrive prices higher.
“There is the potential for a $50 rally out there in themarketplace,” he said. “I think $1,210 is the nut that needs to crack that willreally push prices higher.”
While many investors see critical resistance at $1,250 anounce, some note that $1,236 is the first hurdle that needs to be crossed.
Cracks Starting ToAppear In U.S. Economy
Not only is the Federal Reserve starting to move to a moreneutral stance on monetary policy but some economists are beginning tohighlight growing weakness in the U.S. economy.
David Rosenberg, chief economist and strategist at GluskinSheff, noted that as of Thursday, 14 economic reports so far this month havemissed expectations.
With the home sales and Markit PMI weakness, we now have 14 economic indicators for August miss expectations, 5 beat and 3 in-line. Here we have nearly 3 misses for every beat, and yet the bullish chatter on the economy shows no signs of abating. Welcome to the Flat Earth Society
— David Rosenberg (@EconguyRosie) August 23, 2018Supporting the uncertain economic outlook, Hansen said thathe is paying closer attention to the Citi Surprise Index. The latest data showsthat U.S. economic data is deteriorating, while European economic data isstrengthening, he said.
Hansen added that the narrowing divergence between the twoeconomies could support the euro against the U.S. dollar, which would help goldprices.
Some economists have noted that while the U.S. economy hasenough momentum to support two more rate hikes this year, the outlook is a lotmore uncertain heading into 2019. Currently, markets are pricing in a more than90% chance of a rate hike in September and a more than 60% chance of a fourthrate hike in December.
However, the market sees a 50% chance of one rate hike bySeptember 2019.
Adding to growing unease is the ongoing trade disputebetween the U.S. and China. Madden said that while global trade issues have nothindered U.S. economic growth just yet, it’s an issue that investors can’tignore. The longer global trade issues hang around, the bigger the risks theywill have on the U.S. economy, he said.
The Final Say
Investors will continue to digest Powell’s comments fromJackson Hole, Wyoming, but they will also need to pay attention to a steadystream of economic data.
The week kicks off with consumer confidence data and then isfollowed up by the second reading of U.S. GDP for the second quarter. The firstreading showed economic growth of 4.1%. Thursday markets will also receiveessential inflation data.
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.