TD Securities: Gold Retreat Since Mid-May No More Than 'Badly Overdue Correction'

Wednesday June 01, 2016 08:33

TD Securities describes the slide in gold the last couple of weeks as a “correction” and “profit-taking” rather than anything more ominous. Precious metals were on the defensive due to concerns about potentially higher U.S. interest rates. “Still, the slide throughout May alongside the stronger dollar and

renewed focus on rising U.S. interest rates should be looked upon as a badly overdue correction and profit-taking, not the beginning of an outright rout,” says TDS in a weekly commodities report. “As far as we are concerned, money managers have merely reduced their overextended net-long positions.” Analysts note expectations are that the Fed will likely only lift rates by a collective 75 basis points this year and next, and while headline inflation may rise as energy prices increase and the U.S. economy recovers, real rates may not move much higher. “Add to this the likelihood that the USD (U.S. dollar) may weaken, as the rest of the world improves its relative economic performance and equities show volatility, and gold may go bid again,” TDS says. “The yellow metal may perform particularly well, if the Fed is seen to be behind the inflation curve and willing to allow prices run above its target.”

By Allen Sykora of Kitco News; asykora@kitco.com