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Gold has room to test support at $1,900 as Fed disappoints - Saxo Bank

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(Kitco News) - Although the Federal Reserve signaled Wednesday that it is not looking to raise interest rates for the next two years, the lack of any new stimulus measures could push gold prices to the bottom of their current trading range, according to one commodity analysts.

In a report published Thursday, Ole Hansen, head of commodity strategy at Saxo Bank, said that there is a risk that gold prices test the bottom of their current range around $1,900 an ounce.

"While the Fed has promised rock-bottom rates for longer than three years, the across market reaction with lower stocks and a stronger dollar, have raised some concerns that the Fed's toolbox has started to look empty with the element of surprise no longer there," he said.

Hansen noted that the gold market is struggling as the Federal Reserve's latest outlook has stabilized yields on 10-year notes and real interest rates have risen as inflation expectations have fallen. A stronger U.S. dollar adds further strength to the current headwinds, he said.

Although gold prices look vulnerable in the near-term, Hansen said that he expects the market to maintain its long-term uptrend.

He added there is significant market uncertainty will continue to keep a bid in the gold price; in particular, the unabated spread of the coronavirus continues to weigh on economic growth, he added.

"It is our worry that the optimistic views on when a vaccine against Covid-19 will be become widely available are too optimistic. With the case count continuing to rise around the world, recently also in the U.S., the global economic recovery look set to slow over the coming months," he said.

Hansen is also neutral on silver as he sees the prices stuck in consolidation between support at $26 and $27.50. He added that silver will continue to meander in its range as gold provides no direction from the market.

"With no major changes seen in its relative value versus gold where the XAUXAG ratio has traded in a very tight range around 72 ounces of silver to one ounce of gold," he said.

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