Kitco News Weekly Outlook: Gold Bulls Race Out Of The Gate To Kick Off 2018
(Kitco News) - While off nearly four-month highs, the gold market is still ending its first trading week of 2018 on a strong note as prices hold above key support levels.
According to analysts, gold continues to build on its year-end momentum, ending its fourth week of consecutive gains - longest weekly win streak since mid-March. February gold prices last traded at $1,321.80 an ounce, up almost 1% since last Friday.
Silver is also pushing higher in its first trading week of the new year. The precious metal is preparing to close the fourth week of consecutive gains, its longest winning streak since early-February. March silver futures last traded at $17.28 an ounce, also up almost 1% since last week.
While optimism in the precious metals remains elevated, some analysts say that the market could be due for a pullback in the near-term. They note that technically, the yellow metal is looking a little oversold.
“I think gold has room to move higher but it could pullback without damaging its momentum,” said Darin Newsom, senior analyst at DTN. “I think it would be healthy for the market to consolidate around this level for a couple of weeks.”
Bill Baruch, president of Blue Line Futures, said that he remains bullish in the long-term but is looking for prices to fall back to $1,302, which he sees as a new entry point.
David Madden, market analyst at CMC Markets, said that he remains bullish on gold as long as prices remain above $1,300.
Keep An Eye On U.S. Dollar And The Yield Curve
Despite some technical selling pressure, some experts have noted that gold continues to receive support from a weaker U.S. dollar. The U.S. Dollar Index has lost ground for three straight weeks as prices hover near a four-month low.
The U.S. dollar has found little support from interest rate yield. Following disappointing December employment numbers, the yield curve -- the spread between 10-year and 2-year bond yields fell to a multi-year low at 49 basis points.
While unlikely, a flatter yield curve signals a rising risk that the U.S. economy could fall into a recession.
“The U.S. dollar remains weak as yields remain sideways,” said Christopher Vecchio, senior currency strategist at DailyFX.com. “We are seeing inflation expectations pick up but that is only because of a weak U.S. dollar and that will lead to lower real rates and increase demand for safe-haven assets like gold.”
Pay Attention To Equity Markets
Vecchio added that he thinks gold could continue to attract investment capital as investors diversify away from overstretched equity markets. The Dow Jones Industrial Average hit another major milestone this past week, pushing past 25,000 points.
U.S. and global equity markets continue to see record levels as global economic growth picks up, according to some economists.
However, analysts have noted that the record bull rally in equities has been a major competition for the gold market. With volatility hovering near record lows, analysts note that investors continue to see little risk in the marketplace, prompting them to chase higher yielding, riskier assets.
“While we are seeing some diversification flows, it’s still early days in 2018 so it’s too soon to tell if this trend will last,” said Vecchio.
Relatively Quiet Week Ahead
Next week marks the end of the holiday trading period. However, with little economic data out, activity will be relatively muted in the first half of the week.
Volatility and trading volume should pick up in the second half with the release of important inflation data - the Producer Price Index and Consumer Price Index – followed by the release of December retail sales figures.
Key Levels To Watch
Commodity analysts have been bullish on gold since mid-December as January is historically a positive month for prices. With the market building strong technical momentum analysts say that prices have room to move higher.
Newsom said gold prices could test resistance at $1,333 an ounce before there is significant profit taking in the marketplace.
He added that even if the market does consolidate he wouldn’t shift his bullish outlook unless prices pushed to a four-week low of around $1,250 an ounce.
Vecchio said that he sees, $1,315 as a key pivot point for gold in the near-term and the market will remain bullish as long as prices stay above that level.