(Kitco News) Gold has a chance to surpass its key resistance level of $ 1,750 per ounce next week. According to analysts, this is what investors need to watch out for.
Yellow metal started very well in the second quarter, with prices around 1% for the week. June Comex gold futures were last traded at $ 1,746 an ounce. Earlier in the week, the precious metal had risen nearly $ 50 since last Friday, as it traded near $ 1,760 an ounce.
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 its transitional inflation position, it told Kitco News OANDA senior market analyst Edward Moya. And that change in sentiment could limit the rapid rise in U.S. Treasury yields to ten years.
“What was different this week was that the Fed seems convinced that we will have to wait until next year to show that it is not right with inflation. Before that, the markets were trying to cover up that risk. Now, this will be pushed “much further down the road,” Moya said.
The change in sentiment could support gold in the future, especially ahead of U.S. inflation data on Tuesday, which could also rise after a surprising PPI report on Friday.
“The US PPI jumped 1% month-on-month to leave the annual rate at 4.2%, the highest since September 2011. This was well ahead of the 0.5% consensus forecast,” he said. say ING international economist James Knightley. “This will add to the rising risks of the CPI.”
A stronger-than-expected CPI could lead to a further rise in yields. But if gold can stay around the $ 1,750 level, there will be a potential for the yellow metal to recover to $ 1,800 an ounce, analysts told Kitco News.
“If we get warmer 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 dollars, it would be a green light for prices after CPI data, there could be more upside potential for gold, ”Moya said.
The good news for gold is that it may have already hit lows during the first quarter of 2021.
“It looks like the fund is in gold. The Fed eliminated the big risk in terms of rising yields. We will see an environment where gold can continue to rise,” Moya said. “And while we may not see August’s record highs, gold could advance back to $ 2,000.”
It is still too early to decide how the economic recovery will evolve, Moya said. “There are still too many risks. Also, once the economic recovery in the rest of the world recovers, we will see a significant weakening of the dollar.”
The technical outlook shows a double gold background, said Sean Lusk, co-director of Walsh Trading. “The low of March 31 to March 8 forms a classic double bottom. The $ 1,759 level provides some resistance. If gold breaks it, the precious metal can reach $ 1,800,” he said.
Other gold support engines are stronger physical demand and renewed central bank gold buying, strategists at TD Securities said.
“Strong Chinese and Indian demand along with renewed interest from central banks have provided enough support for yellow metal to remain in its upward trend of the pandemic era,” the strategist said. “The breadth of central banks buying gold could increase substantially given the massive increase in sovereign debt and the rapid growth rate of money supply in reserve currency countries. A sustained increase in official interest could provide additional support for the yellow metal “.
However, there are unlikely to be new record highs for gold until the demand for safe havens goes to the crypts, Moya noted. “There has been some diversification of gold. Cryptographic madness has not yet erupted. If the cryptocurrency bubble appears, it’s a game changer for gold. But that’s hard to measure. The $ 2,250 level could to be realistic for gold we had to see the cryptographic bubble burst, ”he said.
Blue Line Futures chief market strategist Phillip Streible was more bearish, noting that gold may not fare well in the current environment defined by accelerated growth.
“Gold only works well 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 will be buyers of $ 1,680,” he said.
According to Streible, the only joke that could drive gold up right now is a saving of geopolitical tensions.
Data to see
Tuesday’s CPI is expected to rise to 2.5% year-on-year in March. Over the summer, ING predicts inflation to approach 4% in light of a stimulus-fueled economy.
“Inflation could stay closer to 3% for most of the next two years and, in an environment of strong growth and rapid job creation, adds to our sense that risks are increasingly distinct. more toward a rate hike in late 2022 rather than 2024, as the current Fed favors, ”Knightley said.
Other data to be seen next week are U.S. unemployment claims, retail sales, the Empire NY manufacturing index, the Philadelphia Fed manufacturing index, and industrial production.
In addition, markets will pay close attention to Friday’s building permits and housing initiatives.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor can the author guarantee this accuracy. This article is for informational purposes only. This is not a request for any exchange of goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article does not accept guilt for loss and / or damage resulting from the use of this publication.