US Political Drama, Weakening Commodity Markets To Influence Gold – Analysts

New York (Mar 24)  A general malaise in commodity markets could limit gold’s upside potential next week as analysts remain mixed on U.S. dollar strength ahead of a much anticipated vote on healthcare reform.

After hitting a one-month high earlier in the week, April gold futures are holding on to most of its gains as it last trades at $1,249 an ounce, up almost 1.5% since the previous Friday. This is the yellow metals see consecutive week of gains.

Silver is also ending is second week of positive gains, last trading at $17.745, up almost 2% from the previous week.

All eyes are on Washington ahead of the much anticipated vote on the American Health Care Act, the bill introduced by House Republicans to replace the Affordable Care Act, or more commonly referred to as Obamacare. However, even if the vote does pass, some analysts say that the damage on Capitol Hill is already done.

“Markets are pricing in perfection right now and could shift their expectations if there is going to be a fight like this over every piece of proposed legislation. Growing expectations of delays in tax reform and deregulation will continue to support gold,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic consultant for Rosland Capital, agreed continued geopolitical uncertainty will continue to benefit gold prices. He added that even if the House does pass this legislation, it could still fail in the Senate.

A failure of healthcare reform could change people and markets’ view of President Donald Trump as an effective leader, he said.

“A political crisis in the United States is looming and this alone will be enough to support a rising tendency in the price of gold,” said Nichols.

Looking Past U.S. Politics

While geopolitical risks will provide support for the gold market, Hansen warned that investors also need to pay attention to the overall commodity markets.

He added that weakness in broader commodities like copper and oil could limit gold’s upside weakness. Currently investors are a lot more cautious on global growth and inflation expectations, which would be negative for gold.

“If we don’t have a pickup in growth then there won’t be enough demand for commodities to overcome increasing supplies and that could weight on gold,” said Hansen.

“We need a clear break above $1,265 an ounce to attract new money in the gold market.”

U.S. Dollar Risks Are Balanced

Nick Exarhos, senior economist at CIBC World Markets warned gold could start to trade sideways as they see limited movement in the U.S. dollar. He explained that while the U.S. dollar appears to be toppy, they don’t see significant weakness in the U.S. dollar.

“Any near-term weakness in the greenback is expected to be just part of the regular ebb and flow of the marketplace,” he said. “We are still slightly bearish on gold as we see bond yields creep higher,” he said. “However with limited upside potential in the U.S. dollar there should be limited downside for gold.”

Exarhos, said that global monetary policy divergence will continue to support the greenback.

CME 30-Day Fed Fund futures are pricing in a 51% chance that the Federal Reserve will raise interest rates again in June; however, expectations for three rate hikes are relatively low with markets pricing in a 35% chance or a third rate hike by December.

Levels to Watch

Hansen said that the major level traders are watching is around $1,266, which is also gold’s 50-day moving average. Until that area is broke, gold will remain stuck in a $50 range, he added.

Colin Cieszynski, senior market analyst at CMC Markets, sees gold stuck in a range and he would expect to see some profit taking in the near-term as prices are already testing the top end of his range.

Analyst Lukman Otunuga, commodity analyst at FXTM, said that he sees gold still in an uptrend as long as prices remain above $1,225 an ounce.

“In times of unease, Gold remains a trader’s best friend,” he said.

The Final Say…

With markets in a holding pattern because of U.S. political uncertainty, not much focused has placed on the economic data. Next week will remain light on major economic data so that trend may continue.

According to some economists, more Fed speak next week will continue to garner market attention as investors try to gauge the timing of the next interest rate decision. Central bank speakers next week include Chicago Fed President Charles Evans, Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari.

For economic data, markets will receive March consumer confidence data, the final print for fourth-quarter GDP, pending home sales, ending the week with personal income and spending numbers.

Source: KitcoNews