Geopolitical uncertainty is helping to support gold prices but an impending rate hike in less than two weeks could finally take its toll on the market, with some analysts expecting gold prices to test support below $1,300 an ounce in the near-term.
The gold market is looking to close its second week in relatively neutral territory, within a narrowing trading range. April gold futures last traded at $1,325 an ounce.
“Gold has remained resilient, but it could be overwhelmed by headwinds of higher bond yields, and a stronger U.S. dollar,” said Maxwell Gold, director of investment strategy and research at ETF Securities said in an interview with Kitco News.
After a lackluster start to the year, silver is starting to outperform gold as prices are ending the week with modest gains. While many analysts are optimistic that silver will eventually outshine gold in a market that is seeing increased demand. May silver futures last traded at $16.695 an ounce, up more than 1% from the previous week.
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Gold’s comments come following economic data that showed that the U.S. saw 313,000 new jobs created in February, well above expectations of gains of around 200,000.
“The probability of a March rate hike, as implied by OIS and Fed Funds futures, has been rising steadily since the start of the year and another strong increase in US non-farm payrolls today all but ensures a 25bp hike in the policy rate on 21st March,’ said commodity analysts at Capital Economics.
However while the economy continues to create jobs, wages remain lackluster. Wages increased only 0.1% last month, below expectations for salaries to rise 0.2%. Many economists have noted that without wage growth, inflation will struggle to push higher.
While markets are expecting higher rates in March, ultimately, Gold said that the lack of inflation and the ongoing threat of geopolitical uncertainty would keep the U.S. central bank from aggressively raising interest rates in 2018.
“If we are not seeing inflation or growth picking up, it’s hard to justify an accelerated path of tightening. Market expectations will recalibrate in the second half of the year and that is when we will see gold prices benefit the most,” he said.
In the near-term, Gold said that he could see prices trade between $1,250 and $1,300 an ounce.
“Any dip below $1,300 is a very attractive entry point to build up a strategic allocation in gold,” he said.
Darin Newsom, senior technical analyst at DTN, said that he is also watching $1,250 an ounce as he thinks the market is looking a little heavy.
“Gold’s inability to break through $1,380 has been very interesting. Gold has been resilient lately but its technical picture is forming what looks like a weak branch that is ready to snap,” he said.
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