Gold To Remain Resilient Next Week Despite Looming Rate Hike – Analysts
(Kitco News) -Gold’s resiliency in the face of a potential rate hike in just over three weeks is surprising some market participants; however, others note that gold is paying more attention to ongoing geopolitical strife.
The yellow metal is preparing to end its third week of consecutive gains as prices push to their highest level in four weeks. June Comex gold futures last traded at $1,266.90 an ounce, up 1% from the previous Friday.
Silver is also ending its third week of straight gains at a four-week high, but outperforming gold. July Comex silver futures last traded at $17.30 an ounce, up 3% from last week.
While the upcoming shortened trading week will see the release of key U.S. economic data, analysts say that gold’s technical momentum and safe-haven interest will dominate market sentiment, next week.
“There is plenty for investors to worry about right now and I certainly wouldn’t want to be short on gold in this environment, said Barry Potekin, vice president of managed futures accounts at RMB Group. “The train might be moving smoothly now, but you never know what is going to happen down the tracks so you don’t want to give up your seat.”
Potekin said that with so much uncertainty around the globe, it is difficult to focus on a 25-basis point hike. Considering the yellow metal’s renewed momentum, he thinks $1,300 could be in the card in the near-term.
“If we get a move back above $1,300 then we are going to $1,400,” he said.
Jasper Lawler, market analyst at London Capital Group, agreed that other factors are outweighing interest rate hikes. Not only will ongoing turmoil in U.S. politics help gold prices in the near-term, but there is growing uncertainty surrounding elections in the United Kingdom next month.
“This ongoing risks surrounding the leadership in two major countries will continue to be good for gold,” he said. “The geopolitical uncertainty has pushed gold above $1,260, a key pivot point, and if we close above this level today then I think we could see higher prices next week.”
Interest Rate Hike Is Baked Into The Cake
One of the reasons why the impending interest rate move is having little impact on gold and currency markets is because it is already seen as a sure thing, said Nick Exarhos, senior economist at CIBC World Markets.
He added that it is difficult to see a new catalyst on the horizon that will push the U.S. dollar higher, removing a major headwind for gold.
CME 30-Day Fed Fund futures are currently pricing in an 87% chance of a 25-basis point hike in June, this is the highest expectations have been in more than a month.
Not only is the U.S. dollar struggling to make new gains, but a stronger euro, is exacerbating, U.S. dollar weakness, said Lawler.
While June is seen as a sure thing, there is still uncertainty surrounding a third rate hike by the end of the year. Markets are only pricing in a 48% chance of a rate hike by December. Traditionally, the Fed does not raise interest rates if expectations are below 50%.
Level To Watch
Not only has gold broken above a key resistance point at $1,260 but the market has made an important technical pattern as the 50-day moving average moved above the 200-day moving average. This is referred to as a Golden Cross and highlights bullish short-term momentum.
Lawler said that the next major resistance level he is watching next week will be $1,280 an ounce. He added if this level breaks then there is a good chance gold could hit a new high for the year at $1,300.
Chris Beauchamp, market analyst at IG, is also watching $1,280 an ounce as he maintains a bullish outlook near-term.
“Dips to the $1250 area this week continue to bring out the buyers, so until this changes we remain guardedly bullish,” he said.
Analysts at iiTrader said in a report that they see major resistance between $1,290 an ounce and $1,294.10 an ounce.
“Only a close back below 1252.6 will signal a failure,” the firm said.
The Final Say
While geopolitical turmoil remains the driving force behind gold, investors will still want to pay attention to economic data as they could add some volatility in the markets.
The main feature of the week will be Friday’s nonfarm payrolls report.
After the Memorial Day long weekend, markets will receive important inflation data with the release of the Personal Consumption Expenditure Index,personal income and spending data.
Mid-week, markets will receive manufacturing data for May and private-sector employment numbers.