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‘Gold Rout Below $1,200 Not Likely’ Ahead Of Fed Rate Hike - TD Securities

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‘Rout Below $1,200 Not Likely’ Ahead Of Fed Rate Hike - TD SecuritiesAs gold holds steadily above $1,230 level, one bank sees $1,200 as a solid near-term bottom for the yellow metal, with no events, not even the Fed rate hike in June, likely to drag it below that level.

“Any major rout below $1,200 is unlikely as the FOMC will continue to be very gentle in how it removes monetary accommodation,” TD Securities’ Bart Melek, global head of commodity strategy and the bank’s Ryan McKay, commodity strategist, wrote in a report.

“A more robust hawkish attitude would only occur if they thought the economy will grow fast enough to place them behind the curve. Still, the risk that they do fall behind the inflation curve, as seen through the eyes of the gold market, and equity market correction risk suggest investors don’t abandon gold quite yet,” commodity strategists added.

With June Fed rate hike “baked into the cake,” gold could drop below $1,220 an ounce, according to the report. But, since future rate hikes are still dependent on data, the downside is limited. “Without a major change in the US economic outlook, it is more likely gold drifts back toward $1,220 and possibly lower as a hike approaches,” TD Securities said.

TD Securities Chart

A move above the current $1,230 level is not in the cards as well, unless there are renewed geopolitical tensions or the U.S. downgrades its economic outlook, the strategists noted.

“Gold lacks a real catalyst to move much higher from here,” Melek and McKay wrote, especially with “the economy still performing relatively well, and Fed speakers likely to take a more hawkish tone prepping the market for the coming hike.”

Overall, gold witnessed a significant improvement after trading most of last week below $1,220. At the time of publication, spot gold on Kitco.com climbed 0.28% to $1,233.70 an ounce. 

The main reason for the uptick included weaker U.S. macro data, increased global uncertainties, and lower U.S. dollar.

“The precious metals complex turned its fortunes around [last week] as stock markets were down with further Trump uncertainties and North Korea risks creeping back into the picture. Disappointments in CPI and retail sales data also helped, as gold rallied back to end the week up 0.5% — driven by a USD slump, a flatter yield curve and lower rates,” the report said. “These lower carry costs and uncertainties have likely persuaded investors to hold off on liquidating more long positions and maintain their hedge for now.”

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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