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Gold Still Has Room To Move Higher Next Week After Hitting 3.5-Months Highs

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(Kitco News) - Although the gold market is showing signs of being overextended, hitting 3.5-month highs Friday, analysts said that continued global geopolitical risks should continue to drive prices higher.

Comex gold futures are preparing to end their fourth straight week of positive gains as prices rose to new highs for the year. April gold last traded at $1,258.7 an ounce, up 1.5% from the previous week, and up more than 9% since the start of the year.

However, gold’s gains are overshadowed by silver’s performance, which will see its ninth consecutive week of positive gains. March silver futures last traded at $18.355 an ounce, up almost 2% from last week. In its nine-week run, prices have rallied almost 17%.

Analysts noted that not only is silver benefiting from gold’s rally as a safe-haven monetary metal, but expectations of stronger global growth is helping drive the grey metal’s industrial demand.

While the rally in precious metals markets is creating some cautious sentiment, analysts said that prices still have room to move higher in the near-term.

“It can be scary buying at the highs but there is a distinct momentum in gold that can’t be ignored,” said Jasper Lawler, senior market analyst at London Capital Group.

One of the reasons analysts remain bullish on gold in the near-term is because there is still little economic data that could shift expectations in interest rate hikes, which would drive U.S. bond yields higher and strengthen the U.S. dollar -- two major negatives for the gold market.

Darren Newsom, senior analyst at Telvent DTN, said the only data that could impact gold prices would be employment data, but that report will not be released until March 10.

“I don’t think anyone has a good handle on global economic conditions and until we do, gold has room to move higher,” he said.

Hedges Funds Not Buying Gold…Yet

Ole Hansen, head of commodity strategy at Saxo Bank, said that he is being a little bit cautious with gold up almost 10% for the year but added that he remains bullish because money managers are still not buying gold en mass.

“Compared to last year, we are not seeing aggressive buying from fund managers. If they are just getting started then this rally has more potential,” he said. “Unwinding of the Trump trade will ultimately be bullish for gold.”

Also supporting gold prices, even at extended levels, is the fact that the Federal Reserve continues to confuse markets on the timing of the next interest rate hike. With Trump’s tax reforms not expected to come until at least August, markets are left to wonder whether or not the central bank will be ready to move in March.

“We have an FOMC that is clueless as everyone else and that is creating a lot of uncertainty,” Hansen said. “Positive employment data is probably the only thing that could prompt the Fed to move in March.”

Levels to Watch

Analysts noted that Friday’s rally was a significant technical bullish move as prices are trading around the 50% Fibonacci retracement level from the July highs to the December lows.
Newsom said that the next major level he is watching is the 61.8% retracement level, which comes in at $1,288 an ounce.

Chris Beauchamp, market analyst at IG, said that he is watching resistance at $1,274 an ounce. He added that while there is a risk of a pullback in the near term, he expects a drop to $1,230 to be seen as a buying opportunity.

Other analysts said they are also watching the 200-day moving average, which comes in at $1.271.50 an ounce, which could provide some near-term resistance.

The Final Say

While markets still have to wait a little bit longer for the February employment report, there will still be an impressive docket of economic reports released next week.
Some of the top reports include January Durable goods numbers, consumer confidence for February, personal income and spending numbers for January, ISM manufacturing data for February and the preliminary reading of fourth-quarter GDP.

“Some of the data is kind of backwards looking but if the U.S. dollar finds some support on stronger-than-expected data then we could see some profit taking in gold,” said Lawler.

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.