Gold Will See New Highs After Markets Get Past Hawkish Fed Outlook - TD Securities
(Kitco News) - The recent positive gold price action has been restrained by a hawkish Federal Reserve outlook, said TD Securities in a report.
“International tensions, a somewhat weaker USD and volatility in equities have taken gold as high as $1,365/oz this week. But, the yellow metal has yet to emerge from a tight trading range in the face of several expected increases in the Fed Funds rate,” head of global commodity strategy at TD Securities Bart Melek said in a report on Monday.
Last week, gold had a great opportunity to rally out of its narrow trading range, noted Melek.
But, even though prices did well — rising to the highest levels since January 25th on geopolitical risks surrounding Syria strikes, Russia sanctions, as well and U.S.-China trade war fears — the bullion’s move up was limited.
This restrained rally once again disappointed the gold bulls, who are looking for gold to rise above $1,370.
“Money managers quite often will take gold positions as protection during uncertain times, given its safe-haven appeal. But after the Chinese leader signaled that he is willing to come to some sort of trade deal with the US, gold fell,” Melek wrote on Monday.
As geopolitical risks eased on Monday, markets switched their attention to a more aggressive Fed.
“Markets started to focus on the possibility that the Fed will continue to hike at least several times this year. As such, gold failed to break out of the tight trading range it’s been locked in for the year, between $1,300-$1,370/oz. It retraced back to the low $1,330s, after the FOMC Minutes continued to signal more hikes and risk appetite stabilized,” Melek stated.
Gold bulls will now be searching for a sign that the Fed is willing to be slower in its approach to monetary policy tightening,
“Any sign from the Fed the US central bank is willing to allow inflation to move above target, that the Fed may be making a policy error or that inflation could disappoint given weaker-than expected inflation data will be needed to give gold a lift above the upper bound of the range and toward $1,400/oz,” Melek said.
Gold began to edge up as Asian markets opened on Tuesday following a mixed day on Monday. Spot gold on Kitco.com was last trading at $1,347.50, up 0.13% on the day, while June Comex gold futures were at $1,350.90, up 0.01% on the day.
Kitco’s senior technical analyst described gold’s price movement on Monday as “impressive” in light of "the upbeat trader and investor attitudes in the marketplace.”
“Gold bulls' next upside near-term price breakout objective is to produce a close in June futures above solid technical resistance at the January high of $1,375.50,” Wyckoff said in his PM Roundup.