Thursday May 19, 2016 12:53
(Kitco News) - Gold prices are off their lows but still remain under pressure Thursday morning on rising expectations for a U.S. interest rate hike as early as June.
At the start of the North American trading session, gold futures were down more than 2% on the day; however, those losses have pared back slightly and one commodity analyst notes that continued weakness would create new buying opportunities.
As of 12:47 p.m. EST, June Comex gold futures were trading at $1252.50 an ounce, down 1.72% on the day.
In a report Thursday, Ole Hansen, head of commodity strategy at Saxo Bank, said that despite the new selloff, the gold market remains “shiny.” The Danish Bank is one of the latest financial institutions that increased its outlook on the yellow metal, expecting prices to hit $1,400 an ounce by the end of the year.
“We view this correction as a buying opportunity,” he said.
Hansen described the current gold market as “stale” as prices have been relatively range-bound with resistance at $1,300 an ounce and initial support at $1,280 an ounce.
“Gold had become increasingly frustrating to trade during the past three months. Bulls have been disappointed by gold's lack of progress despite continued strong demand from institutional and retail investors through futures and exchange-traded products,” he said in his report. “Sellers have also been frustrated by a lack of proper corrections following the strong surge at the beginning of the year.”
Hansen noted that a drop to support at $1,245 and then again even a break to $1,228 an ounce would be a healthy correction and take some of the “speculative froth” out of the marketplace.
Last week, the Commodity Futures Trading Commission noted that gold’s speculative long positioning among money managers was down only slightly from it near-record highs seen in the previous week.
Hansen added that a drop in prices would allow other investors to jump into the market, creating the potential for a new rally. Although expectations are now shifting towards a Federal Reserve rate hike as early as June, Hansen said that he doesn’t see this as a major obstacle for gold’s long-term potential.
“While a stronger dollar will create a more challenging environment for gold, the focus may turn to rising inflation, which, combined with very low interest rates elsewhere, will continue to support gold in the coming months,” he said.
While the U.S. market is looking at potentially higher interest rates, Hansen noted that there are still trillions of dollars worth of government bonds that are offering negative yields. This environment will, be supportive for gold, he said.
Hansen is also bullish on gold as a safe-have asset, especially as Britain prepares to vote on whether or not to remain part of the European Union.
“The outcome is by no means certain yet,” said Hansen in webcast Wednesday.
According to the Financial Time’s Brexit poll tracker, as of May 17, the “remain” camp had a slight advantage with support around 46%; support for an exit is around 40%.
An uncertain referendum outcome could impact the Fed’s rate decision in June, as it meets eight days before the UK vote.
Thursday, in an interview with Bloomberg Radio, non-voting member and Richmond Fed President Jeffrey Lacker said that a Brexit could have spillover effects on the U.S. economy and if the vote is close, he would support leaving interest rates unchanged.
“If prospects looked uncertain enough and the direct expected consequences looked problematic enough, I might be persuaded to pause and wait until July,” he said in the interview.