Gold Investors: Keep The Faith, Higher Prices Coming - Analysts
(Kitco News) - Frustration is starting to build among gold investors, but analysts are encouraging them to keep the faith as the market still has potential to break through $1,400 an ounce eventually.
While the breakout may not be on the horizon in the short-term, many analysts think that it is only a matter of time and instead of giving up, many analysts see a drop back to the lower end of its current trading range.
This week has been particularly vexing for investors as the yellow metal was unable to hold gains above $1,350 an ounce even after last week’s rally, which saw the best weekly gains in nearly two years. This week the gold market has given almost half of those gains. June gold futures settled the week at $1,327.3 an ounce, down almost 2% from the previous Friday.
After hitting a three-week high, the silver market also ended up giving back all of its gains from the previous week. May silver futures last traded at $16.268 an ounce, also down nearly 2% from last week.
Bill Baruch, president of Blue Line futures, said that he still sees the potential for gold even after its latest rally has fizzled out. He added that investors need to stop getting lost in the small corrections and focus on the overall trend.
“I don’t think the trade is gone just yet,” he said. “The more ground gold can hold the better it will do when the U.S. dollar eventually turns. I expect the U.S. dollar will lose another 5% this year and that will be bullish for gold.”
Jasper Lawler, head of market research at London Capital Group, said that the gold market is just biding its time, waiting for the spark that will ignite a new rally. He added that although the gold market is unable to break out, prices continue to consolidate in a higher range.
“We aren’t seeing any major capitulation and that could be a good sign for the market,” he said. “When we see more sustained weakness in equities that will be gold’s time to shine.”
It is Not Just Gold That is Frustrating Investors
While gold investors might think they are suffering alone, Colin Cieszynski, chief market strategist at SIA Wealth Management said that it looks like all markets are in a holding pattern at the moment. He noted that equity markets are churning as much as gold. Earlier this week equities saw an across-the-board 2% rally only to see those gains disappear the following session.
Cieszynski added that in currency markets, the euro, pound, yen and U.S dollar, are all stuck in a range.
“There is no conviction one way or another to push prices in any markets,” he said. “Investors are just waiting around to get more information. For the gold market, we see economic growth with no inflation and geopolitical tensions are starting to ease, but volatility in markets continues to provide important support.”
The market could get some direction next week as markets wait for the release of March’s employment report. Lawler said that markets will be sensitive to any correction in the employment data after more than 300,000 jobs were created in February.
How To Play This Gold Market
Analysts continue to warn that gold investors need to be patient and pick their buying opportunities carefully. Phillip Streible, senior market analyst at RJOFutures, said that he expects gold prices to fall back to its 200-day moving average, which comes in at $1,304.60 an ounce.
“I think we are going to be stuck in a long-sideways pattern and now we will test the bottom end of the range,” he said. “I would be buying gold around $1,305 and would get out of the market if prices break below $1,300.”
Streible added that he is also looking at buying put options at $1,300 an ounce to provide some downside protection.
Baruch is also looking to buy gold on price drops and likes hedging his position with put options.
Streible added that even though gold is unable to break its current channel, it is a better investment than equity markets.
“Equities are too volatile right now and are a bigger gamble than gold and that could attract some investors,” he said.
The Market Needs To See More Physical Demand
While increased volatility and weaker equity markets will continue to support gold, Maxwell Gold, head of investment research at ETF Securities, said in a recent interview with Kitco News, that the market needs to see a reassurance in physical demand.
He explained that an increase in physical bullion demand will be the spark to drive prices through $1,400 an ounce.
“Physical demand helps to provide ceiling and a floor for the market. Without that physical demand, investment demand doesn’t get you to that new range,” he said.
The Final Say…
While markets will be waiting for Friday’s government employment report, there will be enough data released through the week to keep investors engaged.
Major economic reports that will be released this week include manufacturing and service-sector sentiment data from the Institute for Supply Management. Markets will also get private sector employment data from private payrolls processor ADP.