(Kitco New) - Patience clearly pays off for gold and silver investors as analysts at TD Securities are closing their month-long tactical long positions for 7% gains.
On Feb. 5, as gold prices bounced around $2,050 an ounce, the analysts at the Canadian bank declared “hunting season” was open for gold and silver investors. The precious metals managed to hold critical support around $2,000 and $22 an ounce, respectively and have since rallied significantly higher, with April gold futures hitting all-time highs at $2,192.70 an ounce.
At the same time, silver prices are trading around $24.62 an ounce and are roughly underperforming gold. The gold/silver ratio remains elevated above 89 points.
In base metals, TDS saw a 2% profit in its long copper position.
Although gold still has bullish momentum, Daniel Ghali, senior commodity strategist at TDS, said that volatility could increase, creating some short-term risk for gold prices near record highs.
“We still have a scope for additional gains, but that scope now relies more heavily on macro trends immediately deteriorating in favor of more Fed cuts on the horizon. And so that's a less striking risk-reward scenario,” said Ghali.
In TDS' latest note, the bank said it exited its gold trade at $2,180; the original price target was $2,250 an ounce. The bank said it saw a 7.2% gain in one month. At the same time, the bank exited its silver trade at $24.64 an ounce; the original target was $26 an ounce. The bank saw a 6.9% gain on the trade.
Looking ahead, Ghali said that gold and silver need to see actual rate cuts if they are going to see new consistent bullish momentum from current levels, which is expected to come in June. In his two-day testimony before Congress, Federal Reserve Chair Jerome Powell started laying the foundation for the central bank’s easing cycle.
While speaking in front of the Senate Banking Committee, Powell said that inflation is not far from where it needs to be before the central bank starts cutting rates.
According to the CME FedWatch Tool, markets see a 77% chance of a rate cut in June and are pricing in about 100 basis points of easing.
Ghali said that TDS sees the potential for 125 basis points of easing this year.
“There's still some scope for those expectations to firm,” he said. “ In our view, rate cuts are the most likely driver to bring investors back to the ETF market that will create sustainable upside momentum.”
