Gold's Uptrend Remains In Place As Prices Hold Above 200-DMA - ABN AMRO
Tuesday May 31, 2016 14:47
(Kitco News) - After hitting a 15-month high at the start of the month, the gold market is ending May with its biggest monthly loss since November; however, one international bank remains firm the precious metal will resume its uptrend.
In a report published Tuesday, Georgette Boele, coordinator of foreign exchange and precious metals strategy for ABN AMRO, said that gold prices have been driven lower because of speculative investors fleeing the marketplace on growing expectations that the U.S. central bank will raise interest rates at some point in the summer.
Despite the strong selling pressure seen since mid-May, Boele said that for her, gold’s long-term uptrend hasn’t changed. The Dutch bank reaffirmed its forecast that gold prices will end the year at $1,370 an ounce, a target it has had in place since February.
“As long as prices remain above their 200-day moving averages, the upward trend remains in place in our view,” she said. “For gold prices, the 200-day moving average comes in at USD 1,163 per ounce, for silver at 15.19…”
Gold prices are showing some initial signs of a bottom as prices have managed to hold above $1,200 an ounce and settled the day in positive territory, ending a nine-day losing streak. August Comex gold futures settled Tuesday at $1,217.50 an ounce, relatively flat on the day.
Boele said that she remains positive on gold because she is also not convinced that the Federal Reserve will be able to pull the trigger on a June or July rate hike. She added that currently markets are pricing in a 30% chance of a June rate increase and a 54% chance of a July move, but she also highlighted the fact that the central bank remains data dependent.
“If U.S. economic data fail to match expectations, expectations of a rate hike in June or July will also fade,” she said.
While the speculative market has driven paper gold lower as hedged funds slashed their positioning by more than 7 billion dollars, Boele said that gold-backed exchange-traded funds continue to be a sign of strength.
Since the start of the month, SPDR Gold Shares (NYSEARC: GLD) has seen is gold reserve increase by 43.72 tonnes, its biggest monthly increase since January.
“Positions in exchange-traded products remained resilient, which is a signal that longer-term investors are willing to buy and hold precious metal positions,” she said.