'Too Early To Write Obituary For Gold' - TDS
(Kitco News)- TD Securities says gold may suffer more in the near term,but the Canadian bank looks for the precious metal to eventually recover as theU.S. dollar loses momentum and investors look for a hedge amid geopolitical andtrade issues.
In fact, the late-Thursday report from TDS strategists BartMelek, Ryan McKay and Daniel Ghali forecast that gold will average $1,375 anounce in the final three months of 2019. The report was titled: “Too early towrite obituary for gold.”
Gold weakened this month. The strategists said “it is quitepossible that we have not seen the bottom yet” since traders have been ignoring easing U.S. Treasury yields, signsof weaker economic data and a loss of risk appetite. Instead, gold has beenresponding to a stronger U.S. dollar and technical-chart considerations.
“If price action following the previous ‘death cross’ [onthe technical charts] back in late November 2016 is to be a guide, the $1,230sor even lower are real possibilities,” TDS said.
However, strategists said they envision a longer-termrecovery in gold since the market is already heavily skewed toward the shorts,or bears, and TDS expects the U.S. dollar to start weakening at some point.Gold tends to move inversely to the U.S. currency, which has been stronger formost of June. TDS also pointed out that U.S. 10-year Treasury yields remainbelow 3% and trade-war uncertainty is dampening global economic optimism.
Strategists said they also look for many gold traders tostart “walking back their somewhat lofty Fed rate-hike expectations.” Goldtends to suffer when the market expects more monetary tightening, andvice-versa.
Strategists questioned whether Fed Chair Jerome Powell willbe keen to aggressively hike expectations for higher interest rates during thecurrent monetary-tightening cycle, particularly since “precarious global tradeconditions” are creating risks for economic growth and confidence.
“A pragmatic approach on the part of the U.S. central bank,as we approach the end of the U.S. tightening cycle and as most of the othermajor central banks are in the early stages of policy normalization, shouldeventually weaken the USD and should be quite supportive of gold,” TDS said.
Further, increased equity-market volatility and geopoliticaland trade tensions should boost appetite for gold as a hedge, TDS said. Also,the massive and growing U.S. deficit may prompt a rotation into gold.
“We also think that the negative fallout from Washington'saggressive trade rhetoric will soon bite the U.S. itself,” TDS said. “Thisshould prompt the White House to tone down the aggressive talk, which shouldease the downward pressure on EM [emerging-market] currencies that has been abig negative for gold as they slid sharply lower.”
By Allen SykoraFor Kitco News
Follow @AllenSykora
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