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Risk-off sentiment making a comeback? StoneX cites 'early indications' of gold price turnaround

Kitco News

(Kitco News) Risk-off sentiment might be making a comeback in the second quarter, with "early indications" of a price turnaround for gold, according to StoneX.

"After gold's performance in the first quarter of this year, when it posted its first quarterly decline since the September quarter of 2018, the price looks as if it is basing out," said Rhona O'Connell, head of market analysis for EMEA and Asia regions at StoneX.

For most of the first quarter, gold fell along with the U.S. 10-year Treasury bonds due to the market's perceived inflationary risk. However, this trend seems to be changing in the second quarter, which means potential price reversal for the precious metal.

"It would seem now that attitudes are changing slightly, with the ten-year bond rate easing, which is helping gold to stabilize," wrote O'Connell. "Whether this is a technical correction or a growing belief that the U.S. bond market has taken too much of a beating because there is still a long way to go, remains to be seen."

The Federal Reserve keeps reiterating that it is not planning on raising rates any time soon, and markets might be starting to believe that promise, which could trigger a more risk-off environment, O'Connell pointed out.

"In the background, the physical market in Asia has been picking up smartly, notably in China, with the local prices now at a premium of roughly $9/ounce over loco London," she said on Monday. "Elsewhere, the Perth Mint reports very strong sales of gold and silver coins in the first quarter, especially in Germany and the United States; gold demand thrived, and the Mint could not keep pace with silver coin demand. In March, the Mint sold over 130,000 ounces of gold and almost 1.6M troy ounces of silver in minted product form."

Another price-positive trigger is that the central banks have once again started to buy gold. For example, Hungary's central bank raised its gold reserves to 94.5 metric tons from 31.5 tons, citing "long-term national and economic policy strategy objectives."

From a technical perspective, gold's support remains around the 10-day and the 20-day moving averages at $1,730 and $1,732 an ounce. Resistance is still at the 50-day moving average of $1,757 an ounce.

O'Connell said if gold can move past that resistance line, prices could be looking at the $1,820 an ounce target. "There are early indications that the price may be starting to turn around."

Last week, gold failed to clear the $1,750 an ounce level, which could undermine sentiment, she noted.

This week, markets are closely eyeing the Treasury auctions in the U.S., latest inflation figures, and Federal Reserve Chair Jerome Powell's comments at the Economic Club of Washington on Wednesday. Monday saw the sale of $58 billion of three-year notes and $38 billion of 10-year bonds. Tuesday will see the sale of 30-year debt.

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