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Gold Holds It's Ground And Paves Way For $1,300 Next Week - Analysts

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Kitco News) - Gold investors have something to celebrate heading into the weekend as the yellow metal remained resilient and overcame a difficult week, according to some analyst.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that a lot of negative news was thrown at gold including the U.S. dollar trading at a two-year high and better-than-expected economic data. U.S. gross domestic product grew at 3.2% in the first quarter of 2019.

Despite all the negative news, the yellow metal managed to hold critical support at its 200-day moving average, which currently comes in at $1,267 an ounce. Now analysts see the potential for gold to rise back to $1,300 in the near term.

“I think we can see there is underlying support in the marketplace, and there is not much appetite to sell gold below $1,275 an ounce,” he said. “I think gold has gone as far as it can on the downside for now.”

Gold prices are ending Friday at its weekly high. June gold futures last traded at $1,288.70 an ounce, up nearly 1.7% since the previous week.

However, gold could face a test from an upcoming Federal Reserve monetary policy meeting and the release of U.S. April employment data.

Hansen said that the employment numbers pose a bit more risk for gold prices as this could have the most impact on equity markets, gold’s biggest competitor. He added that the Fed represents less of a threat because the central bank is not expected to move away from its neutral stance, even following better than expected economic data.

“If the Fed strikes a more optimistic tone that might signal to markets that they are ready to take the punchbowl away, and that will not be good for stocks, which look vulnerable at their record highs,” he said.

Hansen added that stock markets will be susceptible to any rise in volatility within the marketplace, which will benefit gold.

“There is a record short positioning in VIX futures. The market is too one-sided and that creates some potential risks that work in gold’s favor,” he said.

Markets Are Still Pricing In A Rate Cut

However, not all analysts are optimistic on gold in the near-term as the current data does not justify a more dovish stance from the Federal Reserve, contrary to current market expectations.

The CME FedWatch Tool indicates that markets are pricing in a more than 60% chance or a rate hike by the end of the year.

David Madden, market analyst at CMC Markets, said that these expectations could be a little overdone as the economic data does not support looser U.S. monetary policy. He added that the U.S. dollar will continue to find support in the current environment when the dust settles.

“Growth is still better than compared to Europe, and that will continue to support the U.S. dollar and weigh on gold,” he said. “Ultimately, the Federal Reserve is in a better position than the European Central Bank.”

Madden said that gold’s downtrend remains in place along with the U.S. dollar’s uptrend.

But not all analysts are convinced that the economic data is as good as it appears on the surface. Darin Newsom, president of Darin Newsom Analysis, said that there are enough fear and uncertainty in the marketplace to override any optimism from the backward-looking data.

“The price action shows that the market doesn’t seem to believe that data,” he said. “The overall uncertainty and global political chaos are keeping a bid under gold.”

Richard Baker, editor of The Eureka Miner's Market Report, said that global uncertainty should help gold prices regain the $1,300 level, saying: there are “still lots of goblins in the global closet.”

He added that he sees even more potential for silver prices, which continues to lag the precious metals market. The gold-silver ratio is currently trading at 85.40 points, which is near its highest level in more than two decades.

“If gold gets some giddy-up, silver will gallop to retake $16 ounce per ounce territory,” he said.

May silver futures last traded at $15.03 an ounce, up 0.5% on the week.

Technical Levels To Watch

Although gold prices are ending the week on a strong note, the market is technically not out of the woods yet.

Newsom said that there is a risk that Friday’s strong momentum move could attract renewed selling pressure. He added that prices need to push past $1,290 to signal a move back above $1,300 an ounce.

Bill Baruch, president of Blue Line Futures, said that he is looking for a move through $1,291.70 to neutralize the negative sentiment in the marketplace.

“We understand that it’s unlikely this will happen today, but early next week is fine,” he said.

On the downside, Hansen said that investors still need to keep an eye on support at $1,275 as this remains an important retracement level. He added that he is confident that the 200-day moving average should continue to hold as long-term support.

The Final Say

Investors will be eager to hear what Federal Reserve Chairman Jerome Powell will have to say Wednesday following the central bank’s monetary policy decision.

However, the week is full of important economic data that could create some volatility in the marketplace, including April’s nonfarm employment report to be released on Friday.

Economists will be anxious to see if wages picked up in April.

Ahead of Friday’s employment report, markets will receive March personal income and spending data, national manufacturing sentiment data and consumer confidence information.

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.