So far Thursday, the metal is higher, rallying since Wednesday’s release of minutes of the May Federal Open Market Committee meeting did not seem to suggest policymakers would be accelerating their pace of monetary tightening. The market received an added boost in safe-haven buying after a summit between the leaders of the U.S. and North Korea was canceled. As of 10 a.m. EDT, spot gold was $11.25 higher to $1,304.45 an ounce.
But should gold reverse course, “we view price dips towards $1,250/oz as good entry levels for fresh long gold positions,” Standard said.
The report, written by precious-metals analyst Suki Cooper, said the second quarter is likely to be the weakest of the year for gold. Gold broke below $1,300 an ounce last week and hit a fresh 2018 low at the start of this week. However, Standard expects prices to average $1,375 in the fourth quarter as the U.S. dollar renews a weakening trend and the potential for inflation expectations rises.
Cooper explained that the market dipped below the $1,250 level ahead of an FOMC meeting back in December. This was the last level at which the physical market responded rapidly to a price decline, she pointed out, as buyers in the key nations of China and India “viewed the price dip as a good buying opportunity.”
Gold’s key driver remains the U.S. dollar, as the three-month rolling correlation continues to hover above 70%, Standard said. Next are 10-year Treasury yields, with the three-month correlation strengthening above 50%.
Standard’s foreign-exchange strategists expect renewed U.S. dollar weakness due to a rebound in global economic growth following a temporary slowdown in the first quarter, as well as ongoing U.S.-driven trade risks that could encourage flows into non-US assets, Standard said.
“Geopolitical uncertainty surrounding the Middle East, trade protectionism and sanctions continue to limit the downside risk for gold prices, rather than providing a catalyst to push prices higher,” Cooper wrote.
She described exchange-traded-product gold flows as relatively stable and “sticky” as investors take a longer-term view and turn to gold as a hedge against geopolitical uncertainty. ETP inflows have reached 98 tonnes and are on track to exceed last year’s annual inflow of 231 tonnes.
Meanwhile, Standard reported that buyers in Turkey have been snapping up gold despite all-time highs in local currency terms. Turkey’s gold imports reached a record 361 tonnes last year and are up 45% year-on-year so far in 2018.
“Local consumers have turned to gold as a store of value amid rising inflation, heightened political and economic tensions, and currency weakness,” Standard said. Further, Turkey’s central bank has been adding to its gold reserves since May 2017, including 85.9 tonnes last year and another 29.9 tonnes so far in 2018.
“Turkey’s demand has bucked weakness in other regions, and the current conditions suggest gold demand will remain strong,” Standard said.
Post by: Allen Sykora