Friday, 24 November 2017 02:42 WIB | GOLD CORNER |Gold OutlookGold Corner
Gold traders need to be patient as the market remains stuck in a narrow trading range, according to one commodity analyst who sees growing potential for higher prices by the end of the year.
Ole Hansen, head of commodity strategy at Saxo Bank, said that a flatter yield curve -- as the spread between two-year and 10-year bond yields has narrowed to the lowest point in 10 years -- and a struggling U.S. dollar against the Japanese yen are two positive signs for the gold market.
œI am watching the yen very closely and short covering could drive the yen higher against the U.S. dollar; gold would like that, he said in a telephone interview with Kitco News. œA flatter yield curve, I think, will reduce risk appetite for the U.S. dollar. That is gold™s best chance in the short term.
In a report Wednesday, Hansen added that continued buying of long-term bonds and selling of short-term bonds indicates that markets are more worried about a recession than inflation, boosting gold™s safe-haven appeal.
Hansen admitted that the recent price action has been frustrating for investors as gold has been unable to push above $1,300 an ounce. However, he added that in an environment of record high equity markets and rising bond yields, gold has been resilient.
œI think we are seeing investors slowly diversify into gold and that is keeping gold well positioned in the near term,™ he said. œGold for now looks caught between less favorable macro indicators on one hand and a world where political risks have been rising. Into this confusion, gold has so far managed to find support and we maintain the view that the risk/reward remains skewed towards higher prices.
Also supporting gold is the fact that the Federal Reserve is in no hurry to aggressively raise interest rate. Hansen noted that Fed Chair Janet Yellen Tuesday evening maintained her gradual interest rate trajectory bias.
As to the recent price action that saw the market once again severely reject the $1,300 level, Hansen said that it probably short-term traders playing the market. He noted that the latest commitment of traders report showed that hedge funds continue to buy gold, expanding the market™s net length.
Looking at technicals, Hansen said that his first support level to watch is $1,275 an ounce but his true line in the sand is around the October lows at $1,260. On the upside, he said that gold prices need to push above the October highs above $1,305 to attract new buying momentum.
œUntil we get a breakout, traders just have to remain patient. I expect a break of $1,300 would create some momentum buying that would take us to our year-end target, which I maintain at $1,325 an ounce, he said.
Source: Kitco News