Gold markets broke out to the upside past week. As of now, the market looks bullish and traders expect gold prices to reach towards the $1300 level and above. Still, it may take a couple of attempts. Pullbacks should continue to find buyers underneath, as the market looks resilient. Geopolitical risks around the world continue to be an issue, and that of course should be a driver of gold buying.
On the contrarian side, investors might not want to chase the market next week as it is showing signs of being overbought.
The yellow metal has seen some significant moves by the end of the last week, breaking through strong near-term resistance and punching above its 200-day moving average.
Gold futures even rallied to their highest level in five months. June Comex gold futures last traded at $1,288.10 an ounce, up 2.4% from last Friday, its fifth consecutive week of positive gains. The market is seeing its best gains in a month.
The near term perspective seem optimistic as long as gold remain above its 200-day moving average, which currently comes in at $1,268.40 an ounce, however, there are resistance levels to watch out for.
Gold is close to overbought levels and prices could pull back in the near-term. However, the long-term picture remains bullish.
The recent gains won’t be sustained as the rally has been driven by speculative interest which is counter-productive to long-term stability.
Gold markets seem due for near-term profit taking as prices approach the key psychological level of $1,300 an ounce.
Trump and The Greenback
Analysts are expecting the gold market to continue to digest President Donald Trump’s recent comments on interest rates and the U.S. dollar. He reiterated his support for a weaker U.S. dollar and said that he thinks interest rates should remain low.
“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately,” he said. “It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.”
Following the remarks, gold prices jumped to a fresh 5-month high at $1,290.70 an ounce in after-hours trading.
However, a comment is hardly a game changer for gold as Trump has no control over interest rates, which drives U.S. dollar strength. The Federal Reserve is still expected to raise interest rates in June. Trump’s comments are not likely to have any long-term impact on gold and the dollar. The U.S. central bank has a long history of independence from government influences.
While Trump’s comments did weaken the U.S. dollar, it was short-lived as the U.S. Dollar Index has managed to remain above key support at 100. Helping to support the greenback is continued expectations of interest rate hikes.
CME 30-Day Fed Fund futures show that markets are pricing in a 55% chance of a June rate hike although it could be the last one for the rest of the year. Markets are only pricing in a 44% chance of a hike in December.
Geopolitical Uncertainty Supports Gold
While gold could see limited gains as the U.S. dollar holds key ground, analysts expect geopolitical uncertainty to be an important factor in the near-term. Investors will be paying close attention to what happens in Asia.
Lingering uncertainty will be good for gold and $1,300 could be in the cards.
There is a strong undercurrent of uncertainty. A crisis may well dissipate quickly but the general atmosphere of uncertainty is going to remain.
From a technical perspective, gold’s key level to watch is its 200-day moving average; as long as prices can stay above this level then the rally will continue to build momentum.
Gold can close the week above $1,280 an ounce then he could see prices pushing to as high as $1,336.
Strong resistance appears at $1,317.70 an ounce with minor resistance coming in around $1,302.10.
While investors will continue to pay close attention to geopolitical risks, the U.S. economic docket is fairly full next week. Markets will receive regional manufacturing data, and housing market numbers.
In the week ahead, the U.S. manufacturing data will be important to watch because this is the first glimpse of second quarter activity. If the data is weak, it could impact the June rate hike. At present, markets seem to be in wait-and-see mode.