Gold prices expected to shine as governments launch stimulus
The expectation comes after the Federal Reserve recently launched open-ended quantitative easing and the U.S. quickly enacted a $2 trillion fiscal-stimulus effort in response to the COVID-19 pandemic and its impact on employment. Other countries are likewise taking action to prop up the global economy and stabilize markets.
“With all of the stimulus money, interest rates at zero, loss of jobs and multiple battles on the economic front, I can’t see how gold is not higher next week,” said Bob Haberkorn, senior commodities broker with RJO Futures.
Further, he pointed out, gold has started to decouple from equities, thus reasserting its role as a safe haven. Since mid-March, the precious metal fell with stocks when traders had to liquidate assets generally to offset losses and cover margin calls in other markets. But there was a period this week when gold moved higher when stocks fell sharply, Haberkorn pointed out.
Twelve market professionals took part in the Wall Street survey. Eleven participants, or 92%, called for higher prices next week. The other respondent (8%) said he expects sideways prices.
Meanwhile, 1,245 votes were cast in an online Main Street poll. A total of 834 voters, or 67%, looked for gold to rise in the next week. Another 235, or 19%, said lower, while 176, or 14%, were neutral.
In the last survey for the current trading week now winding down, 71% of both Wall Street and Main Street participants were bullish. As of 11:04 a.m. EDT on Friday, Comex June gold was trading down 0.6% for the week at $1,643.50 an ounce, although the market recovered smartly from a mid-week blip lower.
“I don’t see how this doesn’t go higher,” said Sean Lusk, co-director of commercial hedging with Walsh Trading. “We will find willing buyers on any dips given the amount of money that is being poured in [through stimulus and monetary-policy efforts].”
Lusk and Price Futures Group analyst Phil Flynn, who also voted higher, said the market is going to start anticipating inflation as a result of all of the monetary and fiscal stimulus.
“I am bullish for next week. I continue to believe that this low-interest-rate environment, coupled with the global expansion of central-bank balance sheets, will be very positive for the price of gold,” said Kevin Grady, president of Phoenix Futures and Options.
Jim Wyckoff, senior technical analyst with Kitco, also said higher for next week.
“The 10-year U.S. Treasury note yield is trading around 0.6% Friday, after trading above 1% last week. Declining U.S. Treasury yields this week are a sign that U.S. bond traders – arguably the smartest traders in the world – expect more serious markets/economic turmoil on the horizon, including suggesting that most markets have not yet fully priced in the eventual global economic toll the coronavirus sickness will exact,” Wyckoff said. “This scenario is bullish for gold.”
Charlie Nedoss, senior market strategist with LaSalle Futures Group, said he looks for gold to keep rising after testing and holding support at the 10- and 20-day moving averages. He also suspects the U.S. dollar will come under pressure.
“We’re [gold prices] are starting to catch our footing,” Nedoss said.
Richard Baker, editor of the Eureka Miner’s Report, listed a target of $1,680 in gold and $15 for silver. Gold has made three runs at $1,700 since late February but has not been able to sustain above this. Baker noted there has been on-again, off-again liquidation driven by bouts of strength in the U.S. dollar index.
“This should eventually abate as more and more stimulus measures become headwinds for the U.S. currency,” Baker said. “Bullishly, the interest-rate picture has again turned favorable for gold with 10-year real rates [which are adjusted for inflation to show real yields] and the German Bund both plumbing negative 50 basis points.”