Is this the best time to stay invested in gold?
Gold, which neared the keenly-watched $1,400 (Dh5,138) an ounce in 2014, had been an investor’s darling, but the yellow metal has mostly been curtailed in a range so far in 2015. But analysts are painting a bearish picture on gold over the short to medium term.
On Thursday, international spot gold traded at $1,200 an ounce level, after having traded in range of $1,163-$1,306.2 so far in 2015.
Gold moved around $1,200 an ounce as bullish catalysts, such as signs of faster inflation, were offset by speculation the Federal Reserve will soon raise interest rates. While the weaker dollar usually draws buyers to gold, there’s also less demand for haven assets with equities near all-time highs.
“Gold continues to be range bound and the recent attempt to break above resistance in $1,225 to $1,235 area have so far failed. A rally in stocks, bonds and the dollar today however have so far not triggered any major sell activity which could indicate some underlying strength,” Ole Hansen, head of commodity strategy at Saxo Bank told Gulf News.
However, the lack of direction in gold hasn’t trimmed trading volumes on the Comex in New York, with a daily average of 170,000 contracts changing hands since March 20, in line with the 100-day mean. One contract represents 100 ounces.
However the move towards $1,300 is not convincing enough, analysts feel.
“Hedge funds and money managers failed to see the latest move higher and as of last Tuesday held a net-long close to the lowest level in 16 months. This level of light positioning has attracted some new buying but so far not enough to take it above resistance,” said Hansen.
“We believe the rally was primarily driven by two factors. First, worries about a Greek default and an exit from the Eurozone have been mounting again. Second, weak economic data out of the United States has weighed on the US Dollar and raised hopes about delays to the first interest rate hike by the US Federal Reserve. Supporting our view that this rally should remain contained, prices have already started moving lower again,” Carsten Menke, Commodity Research, Julius Baer said.
The market seems to be slowly changing its focus from deflation towards the potential for inflation to emerge and this combined with record low core bond yields will continue to provide gold with support, Hansen said.
“In the short term, however, the uncertainty related to if and when the US will make its first strike on interest rates should keep the investment appetite muted and ensure that the price will hang onto $1,200 for a while longer before moving higher later in the year,” Hansen said.
“I see the first move on rates in the US as a buying opportunity for gold as it removes one key aspect of uncertainty in the market. Given the current strength or lack of in the US economy an aggressive round of tightening is not expected,” Hansen added.
Gnanasekar Thiagarajan, director Commtrendz has a negative view on gold over the medium term.
He expects a decline back towards $1,125 or even at $1,050.
“Medium-term view remains negative on the back of US interest rates rising. But recent sluggish economic data has cast doubts on the whether it could happen in 2015 at all. The threat of rising rates is always going to be a cap on gold prices and our medium-term view is negative with a possibility of a decline back towards $1,125 or even lower to $1,050 too,” Thiagarajan added.
No change in stance
Julius Baer said delay in interest rates won’t change its view on investment demand for the yellow metal.
Minutes of the Fed’s meeting showed policymakers believed it would be premature to raise interest rates in June, in line with a view widely held in the market following a dismal start to the year.
“We do not expect investors to re-enter the gold market solely on the expectation of rates staying close to the zero line. For gold to receive lasting support from US monetary policy, we believe the US economy would need to show continued weakness, prompting the Fed to loosen rather than tighten monetary policy,” Menke said.
By Siddesh Suresh Mayenkar
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