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Gold Could Test $1,300 Before Rallying Again And It's All Because Of The Fed - TD Securities

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Gold Could Test $1,300 Before Rallying Again And It's All Because Of The Fed— TD Securities

(Kitco News) - Gold could return back to its $1,300 barrier before going back up to $1,350 later this year, according to TD Securities.

“Gold is currently trading around $1,320/oz, with the 10yr yield near 2.9% and the DXY above 90, it appears as though the yellow metal may look to test $1300/oz as we approach the March 21st FOMC meeting,” Bart Melek, head of commodity strategy with TD Securities, said in a note on Monday.

For the markets, this week is all about the Federal Reserve and its rate hikes, Melek pointed out.

“Given Powell's bullish view on the U.S. economy, increasing chatter of four hikes in 2018 and a potential upward shift in the distribution of the dots next week we would not be surprised to see precious metals take a run at the lower end of the ranges,” he said.

But, the note specified that this short-term weakness is only temporary, as U.S. President Donald Trump’s protectionist rhetoric favors gold in the long run.

“Trump appears willing to give exemptions on the aluminum and steel tariffs, he is still pushing a protectionist rhetoric, with Europe being on the receiving end lately,” Melek said.

American slower-than-expected inflation could also work in support of higher gold prices, TD Securities’ head of commodity strategy pointed out.

“Although inflation appears to be improving, it has remained well below target for an extended period of time, and we anticipate that the Fed will not be keen to increase real rates aggressively,” Melek said. “As such, money managers have been reluctant to reduce their exposure to the shiny metal, and with a ‘go-slow’ approach from the Fed, we could very well head back above $1,350/oz in the latter half of the year.”

Spot gold on edged up as Asian markets opened on Tuesday after falling below $1,316 on Monday.

Live 24 hours gold chart [Kitco Inc.]

Kitco’s senior technical analyst said that gold prices were being pressured by risk-on sentiment on the market. “Keener risk appetite in the world marketplace at present is keeping the buyers of the safe-metals squelched,” Jim Wyckoff said in his PM Roundup. “The gold bulls and bears are on a level overall near-term technical playing field amid recent choppy trading.”

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