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Is $1,300 Gold In The Cards Next Week? - Analysts

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(Kitco News) - While the U.S. dollar is showing some resilience following a massively disappointing March jobs report, it might not have much impact on gold as investors focus on growing geopolitical risks, according to some analysts.

Gold is ending the week near a five-month high because of renewed safe-haven demand after the U.S. launched 59 missiles at a Syrian military airbase overnight. The market also added to its gains after the U.S. government reported only 98,000 jobs were created last month, much less than expected.

June gold futures last traded at $1,266.20 an ounce, up more than 1% compared to the previous Friday. Gold has managed to close in positive territory for four consecutive weeks. Silver is also ending its fourth week of positive gains but has underperformed gold; May silver futures last trading at $18.365 an ounce, up 0.56% from the previous week.

According to some analysts, these two factors could help gold build enough momentum to push to $1,300 an ounce in the near-term. However, some analysts noted that these two events on their own might not be enough to create a sustainable rally.

While the employment numbers caught investors off guard, it was not weak enough to shift expectations for Federal Reserve rate hikes as the U.S. Dollar Index remains above 100. At the same time, the safe-haven sentiment from one-off geopolitical events can fade fairly quickly.

Maxwell Gold, director of investment strategy at ETF Securities, said that these two events have highlighted two supportive influences for gold, the fact that real interest rates will remain low for the foreseeable future and gold is growing in popularity as a hedge against risk.

“We are seeing signs of more investor interest creeping back into the market,” he said. “The macro and geopolitical landscapes are prime for gold to be trading in this range between $1,250 and $1,300 an ounce. I expect gold to remain in this range leading up to the Fed meeting in June.”

Gold also warned that he wouldn’t be surprised to see a short-term pullback following the latest push; however, there is growing upside risk in the marketplace.

Lukman Otunuga, research analyst at FXTM, said that he is also bullish on gold, seeing the near-term target of $1,300 in striking distance.

“The combination of heightened geopolitical risks and diminishing expectations of the Federal Reserve raising rates in the future could boost the value of gold. If the weak NFP eventually exposes the dollar to downside risks, then bullish investors may be provided a firm foundation to drive gold prices towards $1300,” he said.

Geopolitical Uncertainty vs. U.S. Economic Data

Views are currently mixed as to what will have the biggest impact on gold.
Bernard Dahdah, precious metals analyst at Natixis, warned that unless the conflict with Syria escalates, it will not provide much momentum for gold in the near-term.

He added that he is paying more attention to U.S. economic data, saying that the weak employment data could weigh on interest rate expectations. He said that he could see gold prices continue to hover around $1,270 an ounce in the near-term.

“The bigger story right now is whether or not the U.S. economy is showing signs of weakness, which would be positive for gold in the long term,” he said.

However, so far, markets have shrugged off the weaker nonfarm payrolls. CME 30-Day Fed Fund futures are pricing in a 63% chance of a rate hike in June.  At the same time, markets see a nearly 50% chance of two rate hikes this year.

This has helped the U.S. Dollar Index hold above the key level of 100.

Colin Cieszynski, senior market analyst at CMC Markets Canada, said that the military action against Syria has created strong technical momentum for gold with prices pushing above key resistance at $1,264 an ounce. The metal also pushed above its 200-day moving average.

He noted that the Syrian action has raised a bigger issue for the U.S. government and geopolitical risks. “This is a signal of a bigger trend of growing uncertainty and unpredictability,” he said. “President Donald Trump has said with this move that he is not afraid to act so you can’t really push him around.”

Gold also sees the airstrikes as just a piece of a bigger issue. He said that there are now questions about how Trump will deal with North Korea and other foreign nations.

Gold and U.S. Dollar To Rally Together

Traditionally, a stronger U.S. dollar is negative for gold because it makes the commodity more expensive to hold in other currencies. However, some analysts noted that this correlation breaks down during times of high “risk-off” sentiment.

“I think you are going to see capital flow into the U.S. as investors search for safe-haven assets and that will benefit gold and the U.S. dollar,” said Phillip Streible, senior market analyst at RJOFutures.

However, Streible said that ultimately, interest rate expectations are what will determine gold’s long-term trend. He added that muted inflation pressures could end up keeping the Fed on the sidelines, which would be positive for the yellow metal.

Level To Watch

The key level that was on many analysts’ radars was the February high at $1,260. The market tested this area three times in the last month and was the key hurdle.

Cieszynski said that he is now expecting gold to push towards $1,275 an ounce, his next resistance target.

Analysts at iiTrader said that they need to see a weekly close above $1,268 an ounce to signal a drive to $1,300 an ounce.

Joshua Mahony, market analyst at IG, said that following the breakout above $1,264, he is expecting to see a “wider bullish continuation move for the market.”

He added that the market’s uptrend remains in place as long as prices stay above $1,250 an ounce.

The Final Say

Next week is a shortened trading week with markets closed for Good Friday; however, the U.S. government will remain open and the biggest data point of the week -- U.S. Consumer Price Index -- will be released.
Following Friday’s disappointing employment numbers, investors and markets will be eager to get the Fed’s take on the labor market. Fed Chair Janet Yellen will speak Monday at an event at the University of Michigan.

Finally, in other central bank news, the Bank of Canada will announce its latest monetary policy decision Wednesday. Markets are expecting the central bank to keep interest rates at 0.50%.

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.
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