Investors Will Not Abandon Gold As Fed Hikes — TD Securities

Monday June 26, 2017 21:13
TD Securities Gold traders will not “abandon” gold as the Federal Reserve (Fed) proceeds to hike rates further, TD Securities said in a report, adding that the yellow metal will be driven by geopolitical and economic risks.

Analysts from TD Securities said that within the next six months, gold will be trading around $1,275 level, supported by flat yield curve and dovish monetary policies around the world.

“Various risks, ranging from fully valued equity markets to geopolitical and economic concerns should keep the precious metals complex bid,” TD Securities’ global head of commodity strategy Bart Melek and the bank’s commodity strategists Ryan McKay and Daniel Ghali said in the report.

“This, in combination with a flat yield curve and very low real rates across the globe prompt us to believe that investors will not abandon gold, even as the Fed hikes more, and we still believe our $1,275/oz price estimate is still well within reach over the next six months,” they wrote.

Gold prices struggled after the Fed rate hike in June, which was followed by hawkish Fed speakers. In response, the precious metal dropped significantly, reaching $1,240 levels.

“After hitting the lows, the yellow metal jumped to $1,260, but fell to as low as $1,235/oz on Monday—apparently due to a large ‘fat finger’ trade,” the report said. “A busy week of Fed speakers and economic data in the US could well place gold prices on a more distinct path moving forward.”

This week, investors are paying close attention to the Fed speakers as well as the U.S. data releases, including the third reading of Q1 GDP, May core PCE and personal consumption, May personal income/ personal spending and construction spending, June Conference Board consumer confidence, as well as Chicago PMI and ISM manufacturing.

The macro releases will have an additional value this week, as they provide clues whether or not the Fed will actually be able to raise rates further this year, while also starting to reduce its balance sheet.

TD Securities expects the Fed speakers to remain “hawkish” this week, which could put pressure on gold. But, analysts noted that the data could surprise on the downside and send the yellow metal higher.

“The May core PCE deflator statistics are of particular interest, as a weak print will make the Fed's inflation chatter sound hollow,” analysts wrote.

Other key elements that will keep gold prices from retreating are geopolitical uncertainties, according to the report.

“[There are] ever present uncertainties in the US political realm, Brexit negotiations, Italian elections, and tensions in Syria, North Korea, and Qatar which should provide support as investors hold onto the metal as an uncertainty hedge,” Melek, McKay, and Ghali wrote.

By Anna Golubova
For Kitco News