Kitco News Weekly Outlook: Gold Bulls Race Out Of The Gate To Kick Off 2018
(Kitco News)- While off nearly four-month highs, the gold market isstill ending its first trading week of 2018 on a strong note as prices holdabove key support levels.
According to analysts, gold continues to build on itsyear-end momentum, ending its fourth week of consecutive gains - longest weeklywin streak since mid-March. February gold prices last traded at $1,321.80 anounce, up almost 1% since last Friday.
Silver is also pushing higher in its first trading weekof the new year. The precious metal is preparing to close the fourth week ofconsecutive gains, its longest winning streak since early-February. Marchsilver futures last traded at $17.28 an ounce, also up almost 1% since lastweek.
While optimism in the precious metals remains elevated,some analysts say that the market could be due for a pullback in the near-term.They note that technically, the yellow metal is looking a little oversold.
“I think gold has room to move higher but it couldpullback without damaging its momentum,” said Darin Newsom, senior analyst atDTN. “I think it would be healthy for the market to consolidate around thislevel for a couple of weeks.”
Bill Baruch, president of Blue Line Futures, said that heremains bullish in the long-term but is looking for prices to fall back to$1,302, which he sees as a new entry point.
David Madden, market analyst at CMC Markets, said that heremains bullish on gold as long as prices remain above $1,300.
Keep An Eye OnU.S. Dollar And The Yield Curve
Despite some technical selling pressure, some experts havenoted that gold continues to receive support from a weaker U.S. dollar. TheU.S. Dollar Index has lost ground for three straight weeks as prices hover neara four-month low.
The U.S. dollar has found little support from interestrate yield. Following disappointing December employment numbers, the yieldcurve -- the spread between 10-year and 2-year bond yields fell to a multi-yearlow at 49 basis points.
While unlikely, a flatter yield curve signals a rising riskthat the U.S. economy could fall into a recession.
“The U.S. dollar remains weak as yields remain sideways,”said Christopher Vecchio, senior currency strategist at DailyFX.com. “We areseeing inflation expectations pick up but that is only because of a weak U.S.dollar and that will lead to lower real rates and increase demand forsafe-haven assets like gold.”
Pay Attention To EquityMarkets
Vecchio added that he thinks gold could continue toattract investment capital as investors diversify away from overstretchedequity markets. The Dow Jones Industrial Average hit another major milestonethis past week, pushing past 25,000 points.
U.S. and global equity markets continue to see recordlevels as global economic growth picks up, according to some economists.
However, analysts have noted that the record bull rallyin equities has been a major competition for the gold market. With volatilityhovering near record lows, analysts note that investors continue to see littlerisk in the marketplace, prompting them to chase higher yielding, riskierassets.
“While we are seeing some diversification flows, it’sstill early days in 2018 so it’s too soon to tell if this trend will last,”said Vecchio.
Relatively QuietWeek Ahead
Next week marks the end of the holiday trading period.However, with little economic data out, activity will be relatively muted inthe first half of the week.
Volatility and trading volume should pick up in thesecond half with the release of important inflation data - the Producer PriceIndex and Consumer Price Index - followed by the release of December retailsales figures.
Key Levels ToWatch
Commodity analysts have been bullish on gold since mid-Decemberas January is historically a positive month for prices. With the marketbuilding strong technical momentum analysts say that prices have room to movehigher.
Newsom said gold prices could test resistance at $1,333an ounce before there is significant profit taking in the marketplace.
He added that even if the market does consolidate hewouldn’t shift his bullish outlook unless prices pushed to a four-week low of around$1,250 an ounce.
Vecchio said that he sees, $1,315 as a key pivotpoint for gold in the near-term and the market will remain bullish as long asprices stay above that level.
By Neils ChristensenFor Kitco News
Follow neils_C
nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.