Gold Wants To Go Higher, But U.S. Dollar Hijacks Metal's Rise - Analysts
(Kitco News) - The market is paying attention to the rising U.S. dollar, which poses a big risk to gold prices going into next week, according to analysts.
Gold prices ended the week on a lower note, giving up all of Wednesday’s impressive gains. June Comex gold futures were trading at $1,338.10, down 0.79% on the day, as markets are getting ready to close on Friday. Meanwhile, the U.S. dollar index was last at 90.32, up 0.42% on the day.
“The down-move in the yellow metal came as the U.S. dollar index pushed to its daily high. Some profit-taking from the shorter-term futures traders is also featured heading into the weekend,” said Kitco’s senior technical analyst Jim Wyckoff.
Earlier this week, gold hit a high of $1,356, supported by a rally in crude oil and geopolitical risks, which helped the precious metal to stay above the $1,330 level despite a more risk-on sentiment in the marketplace, Wyckoff added.
But, with the next week on the horizon, analysts are telling traders to pay attention to the U.S. dollar.
“The U.S. dollar is a big risk for gold, we’ve seen a bit of an uptick this morning, as the 2-year yield and the 10-year yield curves steepened,” head of global strategy at TD Securities Bart Melek told Kitco News on Friday.
Overall, Melek said he is “little positive” on gold at these levels, saying that the yellow metal is likely to remain range-bound next week.
“The market is looking at the American data and it looks decent. People in the market are talking about potentially four Federal Reserve rate hikes and another two or three the following year, which is driving the 2-year yield,” Melek pointed out.
Some analysts are even more cautious when it comes to prices next week, expressing a bearish stance.
Todd 'Bubba' Horwitz, chief market strategist at BubbaTrading.com, said he will remain bearish until gold breaks above the $1,355 an ounce level.
“Sustainability” is key here, stated commodity strategist at RBC Capital Markets Christopher Louney. If gold can hold near the top of its trading range of above $1,350 an ounce for at least a week, then a bigger move seems more likely, Louney explained.
“We need to see a sustained level above that $1,340-$1,350 for at least a week — that would be enough to break on the upside,” he said.
For now, the RBC Capital Markets strategist is not changing his bearish outlook. “We’ve been calling for some consolidation in Q2. A lot of the long-term macro headwinds are still in place, but are softer than a year ago. Have to keep an eye on the U.S. dollar and the Fed,” he noted.
Gold will need a big geopolitical catalyst to break out of the $1,300-$1,360 trading range, Louney added, while highlighting some significant downside risks, including economic growth and equity market gains.
Geopolitics Have The Power To Move Gold
Geopolitical risks will also remain one of the primary drivers next week, according to Capital Economics analyst Simona Gambarini.
“The main thing to monitor is whatever happens to geopolitical risks, it is what is going to drive prices over the next few weeks,” Gambarini said.
This past week was dominated by a very restrained fallout from Western strikes on Syria, sanctions against Russia, and escalating trade war fears between the U.S. and China.
Gambarini added that any new U.S.-Russia developments could move gold prices.
“Markets will continue to monitor closely developments in relations between the U.S. and Russia. Any signs of deterioration are likely to boost demand for gold and other safe-haven assets,” she said. “That said, tensions appear to have already come off the boil as President Trump has backtracked on his decision to impose additional sanctions on Russia and pledged to maintain a ‘good relationship’ with the country.”
Other analysts are waiting for a completely new catalyst to drive prices higher or lower.
“While bulls remain inspired by geopolitics, lingering trade war fears and U.S political risk, bears have found support in the form of rising U.S rate hike expectations,” said research analyst at FXTM Lukman Otunuga. “Gold is likely to remain a battleground for bulls and bears until a fresh directional catalyst is brought into the picture.”
From a technical perspective Otunuga sees prices challenging $1,360 only if gold maintains the level of at least $1,340, adding that any move below $1,340 could lead to a decline towards $1,324.
Data To Watch
There will be a number of important macroeconomic datasets released next week.
Some of the key things to watch include U.S. preliminary GDP Q1 estimates, ECB interest rate decision, U.S. durable goods orders, Markit composite PMI, existing U.S. home sales and new U.S. home sales.
“We expect GDP data for the US (Friday) to show that economic growth slowed in the first quarter, albeit to a still reasonably healthy 2.3% annualized,” analysts at Capital Economics wrote in a note published on Friday.