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Gold likely to hit $1,450 an ounce despite higher Dollar

Gold likely to hit $1,450 an ounce despite higher Dollar

Release Date:  Friday, May 11, 2018

Gold and Silver Prices

Gold price rose to its first gain in four weeks on Friday after soft U.S. inflation data indicated that the Federal Reserve may caution the pace of interest rate rises.

"The weaker-than-expected April consumer price data on Thursday helped to knock the dollar from 2018 highs and push U.S. bond yields down. The dollar fell further Friday.

"That benefits gold because a weaker dollar makes bullion cheaper for users of other currencies, while lower bond yields make non-yielding gold more attractive to investors.

"St. Louis Federal reserve Bank President James Bullard on Friday spelled out the case against any further interest rate increases. Rates may have already reached a "neutral" level that is no longer stimulating the economy, he said, and going further risks nipping off business investment that may follow the recent corporate tax cut.

"Gold is traditionally seen as a safe asset in times of uncertainty." ("PRECIOUS-Soft U.S. Inflation pushes gold prices higher," Reuters, 05.11.18.)

Gold ended the week up $3.00, closing at $1,319.00. Silver ended the week up $0.11, closing at $16.66.

Gold likely to hit $1,450 an ounce despite higher Dollar: Bank of America Merrill Lynch - Scrap Register

Gold could move in tandem with the dollar temporarily but the inverse relationship will eventually overpower again perhaps in time for the dollar rally tempering itself and neutralizing.

"A commodity bull market is forming and gold has a big part to play, according to one Bank of America Merrill Lynch (BAML) strategist.

"This year, gold prices will rise past the $1,350-$1,375 resistance level, BAML technical strategist Paul Ciana told CNBC on Saturday. And from there, Ciana added, the yellow metal could hit $1,450, where it hasn't traded at since May 2013.

"'As soon as this $1,350 to $1,375 area goes, which I do think it will later this year mostly when the dollar rally kind of tempers itself and neutralizes, that puts gold on the path to $1,450 so plenty of room there,' Ciana said.

"'Gold prices have been forming a six-year long base,' Ciana said. 'In the technical world we like to say, the bigger the base, the higher in space. That's what gold is doing.'

"The yellow metal's prices have faced significant downward pressure from the firming U.S. dollar these past few weeks, even ending last week in red for the third consecutive time.

"As Asian markets opened on early Monday, spot gold on was trading flat, last at $1,316.30, up 0.09% on the day...

"The U.S. dollar index ended last week at 92.61 - the highest level of 2018. Early Monday, the index was last at 92.56, up 0.16% on the day.

"But, Ciana is confident that the U.S. dollar will not be a hurdle for much longer, as he sees both the greenback and gold going up at the same time.

"'When U.S. financial conditions are tightening, like they are today, compared to 2015, very early 2015, gold prices actually rallied about 12 percent and the dollar index had rallied about 6 percent,' explained Ciana. 'There are situations where they both can move in tandem for a short period of time.'

"Gold's upward trajection alongside the U.S. dollar will however be only temporary and then the inverse relationship will once again overpower other factors, Ciana added." ("Gold likely to hit $1,450 an ounce despite higher Dollar: Bank of America Merrill Lynch," Scrap Register News, New York, 05.08.18.)

Gold is beating the stocks so far this year - Holmes

Gold is still a relative outperformer despite the pressure received from the strengthening dollar while gold demand in India likely to increase and demand in China relatively healthy.

"Gold was up half a percent year-to-date through last Friday. This doesn't sound very exciting, but over the same period, the S&P 500 Index was in the red-the first time in nearly a decade that stocks have been negative for the year through the beginning of May. The yellow metal is doing the one thing for which many investors have it in their portfolio-namely, it's trading inversely to the market. This highlights its longstanding role as an attractive diversifier and store of value.

"Gold has been under pressure from a strengthening U.S. dollar, and May has historically delivered lower prices. As I've pointed out before, this makes it an ideal entry point in anticipation of a late summer rally before Diwali and the Indian wedding season, during which gifts of gold jewelry are considered auspicious. Demand in China for the remainder of the year also looks promising.

"India's demand for gold jewelry in the first quarter was down 12 percent from the same period last year, according to the latest report from the World Gold Council (WGC)... Contributing to this weakness was the fact that there were fewer auspicious days in the first quarter than in the same period of the past three years, according to the WGC.

"However, this followed a monumental fourth quarter 2017, when gold demand in the world's second-largest consumer was 189.6 metric tons-an all-time record-so a decline was expected.

"Looking ahead, it's estimated that India will have a "normal" monsoon season this summer. This is good news for gold's Love Trade. A third of India's gold demand comes from rural farmers, whose crop revenues depend on the rains from a healthy monsoon. When the subcontinent experiences a drought, as it did in 2014 and 2015, gold consumption suffers.

"In China, the world's largest importer of gold, jewelry demand rose 7 percent in the first quarter to 187.7 metric tons, a three-year high... The industry is expecting a strong 2018 after a relatively subdued 2017.

"Except for a weak February, demand so far this year has been particularly strong... April represented the third straight month of rising demand. Withdrawals were 28 percent higher than in the same month in 2017, according to veteran precious metals commentator Lawrie Williams.

"Williams writes that fears of a potential trade war with the U.S. could be driving Chinese investors into safe haven assets, including gold bars and coins. Indeed, the WGC reports that bullion demand in the first quarter finished at 78 metric tons, above the three- and five-year averages.

"'I believe this all bodes well for the Love Trade going forward, meaning it might be an opportune time for investors to consider increasing their exposure to gold...'" ("Gold is beating the stocks so far this year," Frank Holmes, Business Insider, 05.09.18.)

Wall, Main St. Bullish On Gold Prices - Sykora

Gold has weathered the storm from a stronger dollar and market professionals see gold prices rising over the next week.

"Wall Street and Main Street are both heavily bullish on the near-term direction of gold prices, based on the Kitco News weekly gold survey.

"The traders and analysts who take part in the Wall Street poll cite mostly technical-chart factors - in particular, gold's ability to hold around the 200-day moving average and the psychologically important $1,300-an-ounce level during a recent price pullback. They also suggest the U.S. dollar's recent strength may be waning.

"Nineteen market professionals took part in the survey. Fifteen of the respondents, or 79%, called for gold prices to rise over the next week. There were two votes each, or 11%, calling for gold to fall or be sideways.

"Meanwhile, a larger-than-average 2,491 voters responded in an online Main Street survey. A total of 2,207 respondents, or 89%, predicted that gold prices would be higher in a week. Another 185 voters, or 7%, said gold will fall, while 99, or 4%, see a sideways market.

"'Gold has weathered the storm from the strong U.S. dollar and held above the 200-day moving average," said Adam Button, managing director of ForexLive. "That's a positive sign for the week ahead.'

"Mark Leibovit, editor of the VR Gold Letter, looks for more of a rally in gold due to a likely pullback in the U.S. dollar...

"Phil Flynn, senior market analyst with at Price Futures Group, is also bullish on gold, commenting that the metal appears to have established a technical bottom after a 'rough week,' with recent pressure prompted by U.S. dollar strength.

"'It looks like we've turned the corner, perhaps because of geopolitical risks and inflation data that not as hot as people thought,' Flynn said. "It allows gold to go up because they [traders] as not as fearful of the Fed raising interest rates.'

"Sean Lusk, director of commercial hedging with Walsh Trading, also cited gold's ability to avoid follow-through selling as the metal recently approached the $1,300 level.

"'I think the trade would rather err to the long side rather than the short," he said. "The path of least resistance is higher, not lower.'

"Robin Bhar, metals analyst at Societe Generale, sees gold trading mostly sideways. 'For the moment, geopolitical tensions are being offset by the dollar,' Bhar commented." ("Wall, Main St. Bullish On Gold Prices," Allen Sykora, Kitco News, 05.11.18.)

Gold Inches Higher With Dollar Weaker - Ramkumar and Hodari

Precious metals are seen as hedge against inflation and downturn in markets while geopolitical tensions have traditionally supported gold prices.

"A declining dollar boosted gold and other metals for the second straight session Friday.

"Gold for June delivery added 0.1%, to $1,323.60 a troy ounce... Prices have stayed between about $1,305 and $1,360 this year, moving within that range based on swings in the U.S. currency, worries about higher interest rates and safe-haven demand.

"A weaker dollar makes gold and other commodities denominated in dollars cheaper for overseas buyers. On Friday, the WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, dropped 0.2%. The dollar hitting its highest level of the year earlier in the week had pressured gold, but some analysts expect it to weaken moving forward as global growth momentum shifts back to other countries.

"Lukewarm April inflation data from earlier in the week has hurt the dollar and eased some concerns that a surge in consumer prices could give the Federal Reserve a freer hand to raise interest rates more quickly, pushing up Treasury yields and making other assets, including gold, less attractive.

"Some investors think gold can still perform well even as rates rise, as long as inflation also picks up gradually. Some money managers use the precious metal to hedge against a pickup in inflation and downturn in other markets.

"'The pressures in my mind are very much to the upside," said George Milling-Stanley, head of gold strategy at State Street Global Advisors.

"Analysts will be closely monitoring conflict in the Middle East and the impact of U.S. sanctions on Iran, as geopolitical worries have supported gold prices throughout the year." ("Gold Inches Higher With Dollar Weaker," Amrith Ramkumar and David Hodari, The Wall Street Journal, 05.11.18.)