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Is Now The Time To Buy Gold As Six-Week Losing Streak Ends?

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(Kitco News) - For some commodity analysts, this could be the perfect time to buy gold as it looks like U.S. monetary policy will be less supportive of the U.S. dollar going forward.

Gold’s four-month downtrend appears to have come to a halt following what economists are describing as neutral to dovish comments from Federal Reserve Chairman Jerome Powell. The yellow metal is seeing its best weekly gains since late-March, ending a six-week losing streak. December gold futures last traded at $1,213.5 an ounce, up more than 2% from the previous week.

Gold appears to be leading the pack as silver continues to underperform in the precious metals pace. September silver futures last traded at $14.795 an ounce, up more than 1% since last Friday.

Bill Baruch, president of Blue Line Futures, said that he has turned outright bullish on gold and looks for momentum to push prices to $1,250 an ounce before it starts to fade again. He added that his firm is recommending to their clients to go long gold aggressively and to monitor the position closely.

“This is the move in gold we have been waiting for,” he said. “We are telling clients to buy as much gold as they are comfortable with and then we continue to ask ourselves on an hour-by-hour, day-by-day basis: is the trading doing what it’s supposed to do? As soon as that answer is “I don’t know,” is when you start reducing your position. However, until then we press this market.”

Monetary Policy Expectations Are As Good As It Gets

Gold’s new rally was sparked after Powell provided little new guidance on future monetary policy. While he said that the U.S. economy has strengthened substantially, he was relatively neutral on the current pace of monetary policy.

He noted that “there does not seem to be an elevated risk of overheating.”

David Madden, market strategist at CMC Markets, said that this could be as good as it gets for U.S. monetary policy. He added that he saw the speech as “putting the brakes” on monetary policy expectations.

“The message was: everything is steady as she goes and that could be good for gold,” he said. “I think because of the strong economy, markets were expecting to see something more hawkish.”

Simon Derrick, managing director of BNY Mellon, said that the latest comments from the head of the U.S. central bank add to an already shaky environment for the U.S. dollar. He added that the comments could signal a peek in the U.S. dollar and a bottom in gold prices.

Investors Are Just Waiting For The Spark To Ignite A Gold Rally

Ole Hansen, head of commodity strategy at Saxo Bank, said it is going to take a material change in the U.S. dollar expectations to push gold prices higher. However, he added that when it happens, there won’t be much to stop the yellow metal from propelling higher.

He explained that historical high bearish speculative positioning in gold represents the markets most significant factor that will drive prices higher.

“There is the potential for a $50 rally out there in the marketplace,” he said. “I think $1,210 is the nut that needs to crack that will really push prices higher.”

While many investors see critical resistance at $1,250 an ounce, some note that $1,236 is the first hurdle that needs to be crossed.

Cracks Starting To Appear In U.S. Economy

Not only is the Federal Reserve starting to move to a more neutral stance on monetary policy but some economists are beginning to highlight growing weakness in the U.S. economy.

David Rosenberg, chief economist and strategist at Gluskin Sheff, noted that as of Thursday, 14 economic reports so far this month have missed expectations.

Supporting the uncertain economic outlook, Hansen said that he is paying closer attention to the Citi Surprise Index. The latest data shows that U.S. economic data is deteriorating, while European economic data is strengthening, he said.

Hansen added that the narrowing divergence between the two economies could support the euro against the U.S. dollar, which would help gold prices.

Some economists have noted that while the U.S. economy has enough momentum to support two more rate hikes this year, the outlook is a lot more uncertain heading into 2019. Currently, markets are pricing in a more than 90% chance of a rate hike in September and a more than 60% chance of a fourth rate hike in December.

However, the market sees a 50% chance of one rate hike by September 2019.

Adding to growing unease is the ongoing trade dispute between the U.S. and China. Madden said that while global trade issues have not hindered U.S. economic growth just yet, it’s an issue that investors can’t ignore. The longer global trade issues hang around, the bigger the risks they will have on the U.S. economy, he said.

The Final Say

Investors will continue to digest Powell’s comments from Jackson Hole, Wyoming, but they will also need to pay attention to a steady stream of economic data.

The week kicks off with consumer confidence data and then is followed up by the second reading of U.S. GDP for the second quarter. The first reading showed economic growth of 4.1%. Thursday markets will also receive essential inflation data.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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