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Here comes $1,900 gold price? All eyes on U.S. data

Kitco News

(Kitco News) Gold is getting a boost from a more downbeat U.S. economic data outlook, according to TD Securities, which sees the coveted $1,900 an ounce level as within the precious metal's grasp.

The $1,900 level has been eluding gold since the beginning of January when the precious metal began its downtrend, which only ended last month after gold seemed to have found a bottom just above the $1,680 an ounce level.

Going forward, investors should keep a close eye on gold's relationship with the U.S. macroeconomic data that have been disappointing recently, especially when it came to the U.S. latest employment and retail numbers.

"Gold tends to outperform when economic data is weakening and underperforms when economic prospects improve. Economic data expectations are often adaptive, falling sharply following a negative shock such as COVID shutdowns and the accompanying weak data. Conversely, when data inflects higher, the consensus tends to extend the developing positive trend higher, often overestimating future activity," TD Securities head of commodity strategy Bart Melek explained.

And right now is the time when markets digest several misses on the data front. Market consensus is also likely to downgrade its expectations, Melek added. All of this could help push gold even higher.

"As the data starts to follow a downward trajectory again and the market enters the corrective part of the data cycle, yields should be held down and the USD may be under pressure. Given that the Fed still has an aggressive full employment mandate, inflation expectations may do what they did when data was beating expectations, but in reverse— dropping less than yields. Low real yields should send gold higher again," he said.

On Monday, gold surged nearly $30, with June Comex gold futures last trading at $1,867.80, up 1.62% on the day.

The precious metal broke several critical technical barriers, which accelerated the momentum higher.

"Given gold broke through the 200-day moving average ($1,846/oz), technicians and other money managers may grow exposure. As such, gold may well move within striking distance of our $1,900+/oz target, should U.S. economic data continue to disappoint," Melek pointed out.

The inflation narrative is another positive driver for gold, with fears of price pressures weighing on the market in general.

"With investors sounding the alarm over inflation, institutional interest in the precious metals complex is rising once again," TD Securities said on Monday. "Following months of outflows, returning speculative interest could ultimately spark a breakout. TD Securities expects this period of high inflation to prove transitory, but there remains a substantial amount of uncertainty surrounding the path for inflation. Nonetheless, considering that gold is underperforming against periods of high inflation, we see substantial upside risks for the yellow metal."

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