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Risk Of A 'Sneaky Fed' Is Capping Gold's Move Up - TD Securities

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Risk Of A ‘Sneaky Fed’ Caps Gold’s Move Up — TD Securities

(Kitco News) - An increasing likelihood of a Federal Reserve rate hike is keeping gold prices capped below the key psychological level of $1,300 an ounce, according to TD Securities.

“The market's conviction around a Fed hike will grow over the coming months, which is a key factor that should keep gold prices from meaningfully breaking into $1,300/oz territory just yet,” strategists at TD Securities wrote in a report published on Monday.

The bank sees gold reaching the $1,300 an ounce level only in Q2. But, once that level is hit, TD projects for prices to stay above $1,300 and rise to $1,350 towards the end of the year.

Improved risk sentiment is one of the biggest headwinds for gold prices at the moment. It is also helping equities gain back favor with investors, the report highlighted.

“Market observers need not look far in order to spot the notable recovery in risk sentiment, with the S&P 500 trading some nearly +14%, while MSCI World Equities trades +11% and crude prices trade a whopping +27% higher than during the Christmas carnage,” the strategists wrote.

The Fed and the U.S.-China trade negotiations have a lot to do with that shift in sentiment, the report pointed out.

“The Fed unambiguously declared their flexibility on all policy tools going forward, just as signs of Chinese stimulus emerged and trade tensions ebbed, clearing the path towards a potential deal,” TD Securities noted. “Should the enacted policy responses that have since provided a boost to global markets be successful in keeping the sails on growth steady, which in turn, should keep a firm floor in equities — it would certainly not be out of the question for the Fed to sneak-in a hike or two in 2019.”

Investors should keep an eye on the S&P 500 as a marker for the market’s ever-changing sentiment, the strategists explained.

“A break to the upside could prompt money managers to reconsider the case for an additional hike, while it would also mark a resurgence in risk appetite that should see demand for bullion diversifiers wane,” they said.

For the first quarter of this year, gold is likely to continue trading near $1,275 an ounce level, the report added. At the time of writing, February Comex gold futures traded at $1,283.60, up 0.02% on the day.

But, from a long-term perspective, the bank is bullish on gold, citing increased interest from central banks in the yellow metal. 

“We see several reasons to have a positive outlook on the yellow metal, among them that central banks are catching the gold bug,” the strategists wrote.

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