Gold could trend lower ahead of Fed meeting but no rout

UNITED STATES May 03 2017 10:30 AM

NEW YORK (Scrap Register): Gold could ease ahead of a Federal Open Market Committee meeting this week, but a rout is unlikely, said TD Securities. 

So far, gold has held key chart support despite market-favored candidate Emmanuel Macron’s showing in the first round of French presidential elections and stronger equity markets.

Gold has held up after a report showing U.S. economic growth slowed in the first quarter, ambiguity surrounding a tax plan by U.S. President Donald Trump and the risk of a government shutdown, TDS added.

According to TDS, there are ideas that some of these factors could reduce the chance of two more Fed rate hikes this year. This view has been good for gold, as the flatter yield curve, reduced real rates and the moderating USD (U.S. dollar) all helped to reduce both carry and opportunity costs to hold gold.

Still, the U.S. economy is likely to keep growing, and investors eventually will adjust expectations and no longer be surprised by weakish data.

With the Fed likely signaling more hikes and payrolls rebounding from the sub-100k print last month, speculative investors who hold an outsized amount of net-long positions could well be tempted to unload and take profits.

“As such, gold could easily break through the 200 DMA (day moving average) and trend toward the lower bound near $1,242 an ounce,” said analysts at TDS.