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Gold's bullish uptrend won't be reversed by a 'mean washout' - analysts

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(Kitco News)

The gold market retreated Friday as better-than-expected U.S. data and hawkish comments from St. Louis Fed President James Bullard weighed on prices. But analysts don't see the gold's bullish uptrend reversing soon.

Gold was down around $15 on the day after hitting a high of $2,006.50 earlier in the session. After seeing its best gains in three years last week, gold continues its move higher, testing the $2,000 an ounce level a few times this week. At the time of writing, April Comex gold futures were trading at $1,980.50, down 0.77% on the day.

Gold began to decline Friday after the preliminary U.S. manufacturing and service-sector sentiment data beat expectations for March. The flash U.S. manufacturing Purchasing Managers (PMI) Index advanced to 49.3, marking a five-month high. And the service sector saw the PMI reading jump to 53.8 in March, marking an 11-month high.

Also, St. Louis Fed President James Bullard said Friday that as the banking sector stress eases, the Federal Reserve will have to raise rates higher.

Bullard remained hawkish "in reaction to the stronger economic news and also on the assumption that the financial stress abates in the weeks and months ahead."

He raised his terminal rate estimate to a 5.50%-5.75% range, while his colleagues maintained their target primarily between 5.00% and 5.25%.

But the bond market is signaling that a Fed pivot is coming, RJO Futures senior market strategist Frank Cholly told Kitco News.

"The bond market is telling us we will get a rate cut. That is favorable for gold. We see a correction after a big rally. But that is not enough to change the trend," Cholly said. "It could be as early as June that we see the Fed start to cut."

In the short term, analysts do not rule out a reversal in gold after its quick gains. But the overall trend will remain intact, taking prices above $2,000 an ounce.

"The immediate stretch might be at risk of exhaustion here. But the trade is constructive as long as gold stays above $1,850. Even if we get a mean washout, the downtrend is broken, and I am looking for an uptrend resumption,"'s senior technical strategist Michael Boutros told Kitco News.

The levels to watch on the way up are $2,034, the record-high weekly close, and then $2,075. That would open the door to $2,150, Boutros said, adding that gold spent very little time above $2,000 an ounce in 2020 or 2022.

The banking crisis, combined with the Fed rate hike expectations easing, is creating "true risk-off haven flows," the technical strategist added.

The biggest variable for gold going forward is the contagion risk in the banking sector. And the central question is whether Washington is willing to backstop all depositors. On that front, U.S. Treasury Secretary Janet Yellen and Fed Chair Jerome Powell have been sending mixed signals.

"We are not done with the banking problem. There is a flight of capital from regional banks, and we might see structural failure. How deep it stretches is the problem. There is also the moral hazard of backstopping all depositors. Can't go case-by-case basis," Boutros said. "With regards to gold, it is a constructive move."

Cholly sees gold well supported at $1,950-$1,975 an ounce.

The banking crisis is doing the work for the Fed, and there could be a credit crunch coming, Cholly warned.

"It will get harder for people to borrow money. That is going to slow things down. We will see things slow down without the Fed having to raise rates further. Banks will be tighter and fussier about lending money," he said.

Next week's data

Tuesday: U.S. CB consumer confidence

Wednesday: U.S. pending home sales

Thursday: U.S. jobless claims, GDP Q4

Friday: U.S. PCE price index

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