(Kitco News) Gold is likely to surpass the key resistance level of $ 1,750 per ounce next week. This is what investors should be looking for, according to analysts.
Yellow metal had a very decent start to the second quarter, with prices rising by about 1% a week. June’s Comex gold futures were last traded at $ 1,746 an ounce. Earlier in the week, the precious metal rose nearly $ 50 last Friday as it traded near the $ 1,760 an ounce level.
After being bombarded with Federal Reserve news coverage this week, markets seem to understand that the Fed will wait until next year to prove wrong in terms of its transitional inflation position, OANDA market analyst told Kitco News , Edward Moya. And this change in sentiment could limit the rapid increase in US Treasury yields over 10 years.
“What was different this week was that the Fed seems convinced that we will have to wait until next year to prove ourselves wrong about inflation. Before that, the markets tried to cover up this inflation risk. A lot. further down the road, “Moya said.
The change in sentiment could support the future of gold, especially ahead of US inflation data on Tuesday, which could rise even after the surprisingly strong PPI data on Friday.
“US PPI rose 1% month-over-year to leave the annual rate at 4.2% – the highest since September 2011. This was well ahead of the consensus forecast of 0.5%,” he said. ING’s chief international economist James Knightley. “This will add to the positive risks for the CPI.”
A stronger-than-expected CPI number could trigger a further increase in yields. But if gold can hold the $ 1,750 level, then there is the potential for the yellow metal to recover to $ 1,800 an ounce, analysts told Kitco News.
“If we get stronger inflation readings next week, it could be a catalyst for higher Treasury yields, which would be bad for gold. But once we get past that event and if gold is still close to $ 1,750 “It would be a green light for prices. There could be more potential for gold to rise after CPI data,” Moya said.
The good news for gold is that it may have already reached lows in the first quarter of 2021.
“It looks like the bottom seems to be in place for gold. The Fed has eliminated the big risk as yields rise. We will see an environment where gold could continue to rise,” Moya said. “And while we may not see record highs in August, gold could move to $ 2,000 again.”
It is still too early to decide how the economic recovery will evolve, Moya said. “There are still too many risks. In addition, once the economic recovery begins in the rest of the world, we will see a significant weakening of the dollar.”
The outlook shows a double bottom in gold, said Walsh Trading co-director Sean Lusk. “The lows of March 31 and March 8 form a classic double bottom. The $ 1,759 level offers a bit of resistance. If gold breaks it, the precious metal can reach $ 1,800,” he said.
Other factors supporting gold are stronger physical demand and the central bank’s renewed gold buying, strategists at TD Securities said.
“Strong Chinese and Indian demand, as well as renewed interest from central banks, have provided enough support for the yellow metal to maintain its upward trend since the pandemic,” the strategist said. “The breadth of central banks buying gold could increase substantially, given the massive rise in sovereign debt and the rapid growth of money supply in reserve currency countries. A sustained rise in official interest rates could provide additional support for the metal. yellow”.
However, new record highs are unlikely for gold until the asylum application continues to go to cryptos, Moya noted. “There has been some diversification away from gold. The crypto craze has not exploded yet. If the crypto bubble appears, it is a game changer for gold. But this is difficult to measure. The $ 2,250 level could be realistic for gold if it were to let’s see the cryptographic bubble burst, “he said.
Blue Line Futures chief market strategist Phillip Streible was lower, noting that gold cannot do well in today’s fast-growing environment.
“Gold only works when you have rising inflation and slower growth. We’re not in that environment,” Streible said. “If gold falls below $ 1,700 an ounce, we are buyers at $ 1,680,” he said.
The only wildcard that could push gold higher right now is an explosion of geopolitical tensions, according to Streible.
Data to follow
Tuesday’s CPI is expected to rise to 2.5% year-on-year in March. During the summer, ING projects inflation to approach 4% in the light of a stimulated economy.
“Inflation could remain close to 3% for much of the next few years, and in an environment of strong growth and rapid job creation, it adds to our sense that the risks are less and less an increase in the rate by the end of 2022, rather than by 2024, as the Fed is currently favoring, “Knightley said.
Other data to look at next week includes US unemployment claims, retail sales, the NY Empire State Manufacturing Index, the Philadelphia Fed Production Index and industrial production, all scheduled to launch on Thursday.
Markets will also pay close attention to Friday’s building permits and housing starts.
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