Analysts See Further Gold Gains Amid Trump Turmoil

Allen Sykora  Thursday May 18, 2017 10:43

(Kitco News) - Analysts see potential for more gold gains in the weeks ahead as political turmoil continues in Washington D.C., perhaps in turn reducing any monetary tightening by the U.S. Federal Open Market Committee.

“I get the feeling that traders would rather lean on the long (bullish) side of the market,” said Sean Lusk, director of commercial hedging Walsh Trading. “The path of least resistance remains higher due to all of the uncertainty.”

Still, some say gold may be due for some kind of a profit-taking pullback as futures traders exit positions to capture gains after the metal rose by 4.2% from the low of early last week to the overnight high.

Comex June gold climbed from a May 9 low of $1,214.30 to as high as $1,265 early Thursday. The single biggest gain came on Wednesday as the stock market had its biggest sell-off of the year after news reports alleging that U.S. President Donald Trump asked former FBI director James Comey to call off an investigation of former White House national security adviser Michael Flynn’s ties to Russia. This came after a number of other stories in recent weeks about possible Russian interference in the U.S. election last fall.

Bob Haberkorn, senior commodities broker with RJO Futures, anticipates that a drip of continuing political stories will mean further gains in gold over the next couple of weeks.

“You’re probably going to see more flight to quality and buying,” he said, adding that the pullback since a strong Philadelphia Fed survey Thursday morning may be seen as a buying opportunity.

He characterized gold as a market that “needs a story” to keep rallying, and right now many suspect there will be more coming out of Washington that in turn will mean a continued safe-haven bid for gold.

“This news has been so fast and so furious,” Haberkorn said. “And with a special investigation going to start, I expect more news to trickle out and more information that will keep gold afloat…enough to push it up toward the $1,300 level.”

Further, he sees potential for the unfolding developments – and their impact on broader markets – to influence the Federal Reserve.

“What has kept gold at bay has been the (expectations for a) Fed rate hike,” he explained. “The likelihood of that Fed rate hike yesterday dropped significantly…(according to pricing of the Federal funds futures), just based on political turmoil. I think that narrative is going to be developing as well over the next couple of weeks – the Fed might be at bay here due to political risk in the United States.”

George Gero, managing director with RBC Wealth Management, is among those who anticipate a short-term pullback. This is in fact occurred early Thursday, although the decline has been modest.

“I see some profit-taking,” Gero said, suggesting this might be encouraged by activity around a Comex options expiration near the end of the month as well as the approach of a June meeting of the FOMC.

But once these events are out of the way, Gero sees more upside potential for gold.

“We’re going to see economic improvement in the euro zone,” he said. If so, this tends to underpin the euro, and gold tends to move with the single European currency and inversely to the U.S. dollar.

“We’re going to see continued steady prices in the summer driving season for gasoline and of course crude,” Gero continued. “This means we could see some inflation starting to rear its head.”

Besides the political uncertainty itself, some analysts and traders have pointed out that the turmoil surrounding Trump also will interfere with passage of his legislative agenda, further helping gold and perhaps hurting stocks.

Further, “who knows what else will be revealed,” Lusk said. The Justice Department Wednesday appointed former FBI director Robert Mueller to lead a special investigation on whether the Trump campaign collaborated with Russia to sway the 2016 election.

And, Lusk continued, there are still other geopolitical issues simmering around the world, which tends to support gold. In particular, North Korea’s nuclear-weapons ambitions have been in the news. Lusk also cited a pickup in physical gold demand, including key consuming nation India.

“I would not be surprised if by midsummer we’re not making new 2017 highs…not this week, but eventually,” Lusk said. June gold peaked at $1,297.40 a month ago.