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(Traders of Kitco) – Traders and analysts are looking for gold to top $ 1,400 a ounce this year now that the Federal Open Market Committee has indicated that a US interest rate cut could come from next month.
"This is a prime time to be long in gold and silver," said Daniel Pavilonis, senior commodities broker at RJO Futures.
The metal hit its highest level in more than half a decade, overnight, after the Fed issued a dovish note more than expected on Wednesday. The FOMC left interest rates unchanged, as expected. In the past, policymakers have promised a "patient" approach to interest rates. Now, however, they cite "uncertainties" about the economic outlook and said they "will act appropriately to sustain the expansion." The political action was approved by eight members, with the only opposing vote coming from James Bullard, who wanted to lower the federal funds rate immediately.
In the wake of the Fed meeting, spot gold rose to $ 1,393.30 on the trading floor overnight, before retreating to $ 1,382.80 as of 9:49 am. That still meant a gain of $ 22.90 an ounce from Wednesday.
The boost came from a "substantially" weaker US dollar, which was pressured by Fed news, said Bernard Dahdah, a precious metals analyst at Natixis.
For August's Comex gold futures, the resistance of the charts was around $ 1,361.50, the high in February. As the market moved up to $ 1,370, stoppages were triggered, said Kevin Grady, president of Phoenix Futures and Options LLC. These are pre-placed orders activated when certain points in the chart are reached.
"There was a $ 20 raise," he continued.
Now, Grady said, the market is trying to figure out what's going on and whether it should be so loud. The failed resistance of the chart becomes support, so market participants will be watching to see what happens at any retreat for the $ 1,361.50 area, continued Grady. In fact, he noted, there is an axiom that sometimes the best way to gauge the strength of the market is to see how much it underlies in a selloff.
"I would not be surprised to test the support …," he said. "I think we're going to keep that level the first time. The market looks strong. "
Rallies that are simply an overdraft – when investors buy to get out of short or pessimistic positions – tend not to last, he said. However, Grady said that in this case there seems to be long fresh market.
"I think the gold floor is bigger than it was," Grady said.
Dahdah estimates that gold could rise to $ 1,420 to $ 1,430 by the end of the year.
"We expect the Fed to cut rates three times this year," he said. "That will be favorable for gold prices."
TD Securities also seeks more gold gains as investors buy securities by cutting rates. When rates fall, this reduces the so-called "opportunity cost" of gold, which is the lost interest income of keeping precious metal unproductive.
"While CTAs [Commodity Trading Advisers] The recent rally that took gold to trade north of $ 1,366 / ounce of resistance was probably boosted by discretionary traders who have a remarkable amount of dry powder, "the TDS said. "In addition, the portfolios remain under-allocated for gold relative to the historical comparisons for this point in the cycle, suggesting that such high will have staying power. We would not be surprised to see the yellow metal making new highs north of $ 1,400 / oz. "
Grady commented that if chart support persists, the next bullish area of the key will be about $ 1,425 an ounce. However, for the market to achieve this, the Fed would have to deliver 50 basis points of cuts on the rates traders are currently expecting, he added.
Pavilonis commented that gold has now broken above a five-year trendline.
"If we start breaking above $ 1,400 to $ 1,430, this thing will rip up," he continued, suggesting that $ 1,800 could be a possibility by the end of the year.
With the Fed-focused market and monetary policy, some participants may be neglecting another news event that is potentially favorable, Grady said. Iran has crushed a US military drone, so markets will be alert to the US response.
"Let's keep an eye on this," Grady said.
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