(Kitco News) Gold has the chance to rise above its key resistance level of $ 1,750 per ounce next week. According to analysts, this is what investors should pay attention to.
The yellow metal had a very good start to the second quarter, with prices around 1% during the week. Gold futures in June last traded at $ 1,746 per ounce. Earlier in the week, the precious metal has risen nearly $ 50 since last Friday, trading close to $ 1,760 an ounce.
After being bombarded with news coverage from the Federal Reserve this week, it appears that markets understand that the Fed will wait until next year to be wrong about its short-term inflation position, Edward Moya, senior market analyst at OANDA, told Kitco News said. And this sentiment shift could limit the rapid rise in U.S. Treasury yields of ten years.
“What was different this week was that the Fed seems convinced that we will have to wait until next year to be wrong with inflation. Previously, the markets tried to hedge against this inflation risk. It will now be pushed much further down the road,” said Moya.
The change in sentiment could support gold going forward, especially ahead of US inflation data on Tuesday, which could also rise after a surprisingly strong PPI data on Friday.
“US PPI rose 1% monthly to bring the annual headline figure to 4.2% – the highest since September 2011. It was much better than the 0.5% consensus forecast,” said James Knightley, chief economist at ING, said. “This will increase the upside risks for CPI.”
A stronger-than-expected CPI number could cause a new rise in returns. But if gold can hold around the $ 1,750 level, the possibility is that the yellow metal could recover up to $ 1,800 ounces, analysts told Kitco News.
“If we read warmer inflation next week, it could be a catalyst for higher Treasury yields, which will be bad for gold. But once we pass that event and if gold is still close to $ 1,750, it’s a green light for prices There may be more upward potential for gold after the CPI data, ”said Moya.
The good news for gold is that it could have already reached its lows in the first quarter of 2021.
“The bottom line for gold seems to be in place. The Fed has removed the huge risk to rising yields. We are going to see an environment where gold can continue to rise,” Moya said. “And while we may not see the record highs in August, gold could once again turn in the direction of $ 2,000.”
It is still too early to decide how the economic recovery will develop, Moya said. “There are still too many risks. Plus, once the economic recovery increases in the rest of the world, we will see a significant dollar weakness.”
The technical outlook shows a double bottom in gold, said Sean Lusk, co-director of Walsh Trading. “The March 31 and March 8 lows form a classic double bottom. The $ 1,759 level offers some resistance. If gold breaks, the precious metal could rise to $ 1,800,” he said.
Other strategic drivers for gold are stronger physical demand and renewed gold purchases from the central bank, strategists from TD Securities said.
“The strong Chinese and Indian demand, as well as the renewed interest from the central banks, have all provided sufficient support for the yellow metal to maintain the uptrend of the pandemic era,” the strategist said. “The breadth of central banks buying gold could potentially increase significantly, given the massive increase in government debt and the rapid pace of growth in money supply in reserve currency countries. A sustained rise in official interest could further support for yellow metal. “
However, it is unlikely that new record highs will be for gold until the demand for safe haven continues to go to cryptos, Moya noted. “There was some diversification away from gold. Crypto-madness has not yet inflated. If the crypto-bubble appears, it’s a game changer for gold. But it’s hard to measure. The level of $ 2,250 ‘could be realistic for gold if we were to see the crypto bubble burst,’ he said.
Phillip Streible, chief market strategist at Blue Line Futures, was clumsy and noted that gold could not do well in the current environment defined by rapid growth.
“Gold only performs well if you have rising inflation and slower growth. We are not in that area,” Streible said. “If gold falls below $ 1,700 per ounce, our buyers are at $ 1,680,” he said.
The only wildcard that can push gold higher now is a flare-up in geopolitical tensions, according to Streible.
Data to look at
The CPI number from Tuesday in March is forecast to rise to 2.5% year-on-year. In the summer, ING plans to get inflation at almost 4% in light of a stimulating economy.
“Inflation could stay closer to 3% for the next few years and in an environment of strong growth and rapid job creation, this contributes to our feeling that the risks are increasingly skewed after a late 2022 interest rate hike rather than 2024 as the Fed currently favors,” said Knightley.
Other information to be watched next week include U.S. Unemployment Claims, Retail Sales, NY Empire State Manufacturing Index, Philadelphia Fed Manufacturing Index and Industrial Production, all of which will be released Thursday.
The markets will also pay close attention to Friday’s building permits and housing.
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