April Is 'As Good As It Gets' For Gold in Q2; But Don't Worry - ICBC's Kendall
(Kitco News) - Despite gold catching a bid late in the week, one analyst says investors should not get too excited as April might be ‘as good as it gets’ for the metal, at least for this quarter.
However, Tom Kendall’s outlook is not all that grim, noting in a report Friday that gold prices could hit $1,300 an ounce in the short term. The precious metals analyst for ICBC Standard Bank added though that pressure from higher interest rates coupled with softening seasonal demand from India will weigh on gold prices over the longer term.
“April is likely to be as good as it gets for gold in Q2. That said, we are talking about consolidation, not capitulation,” he said.
To make his case, Kendall referred to another bank report by ICBC’s head of G10 Strategy, which highlighted the strong positive correlation between gold prices and Treasury yields.
“[T]here are a number of reasons why longer-term yields in particular may be about to bottom,” he said. “The first of those is that the increasingly bearishness about U.S. growth prospects is probably unwarranted.”
Higher yields would hurt gold prices given that the metal is a non-yielding asset.
Despite Kendall’s overall gold prognosis being positive, he remained conservative on prices over the shorter term.
“In our note of 17 April, we talked about three pillars supporting the rising gold price: U.S. monetary policy, physical (jewelry) demand, and geopolitics. The latter two are likely to be strong enough to push gold up through $1300 in the short term,” he noted.
“However, there is a good chance that increasing pressure from higher rates/a stronger USD will converge with softening seasonal demand in India from mid-May onwards…with the remainder of the quarter marked by a drop back into the mid-to low $1,200s.”
Gold prices rallied late Friday with June futures settling the day at $1,289.10 an ounce, relatively unchanged from the previous week.