“Patience” has been the latest mantra for gold investors as the yellow metal has struggled to find momentum while the first quarter of 2019 comes to a close.
Gold prices are looking to close in negative territory last week, ending a three-week winning streak. Despite a strong rally at the start of the new year, for the quarter, the yellow metal is eking out a modest gain, up 1.3%. June gold futures last traded at $1,297.70 an ounce.
According to analysts, although the precious metal is supported by falling bond yields, it continues to struggle against resilient strength in equity markets and the U.S. dollar; however, some analysts continue to look past near-term U.S. dollar strength as threats to the economy continue to build.
Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that he expects weaker equity markets to signal an end to the dollar’s rally.
“We expect last year's strong dollar performance to have marked a last gasp for the bull market, and for the greenback to remain near the bottom of 2019 performers, which is primarily supportive of metals,” he wrote in a report Friday.
In a recent interview with Kitco News, Axel Merk, president and chief investment officer of Merk Investments said that a lot of the recent price action in gold can be chalked up to quarter-end positioning. He added that long-term, the recent drop in 10-year bond yields remains gold supportive.
Although gold could remain volatile in the near-term, Merk added that last week’s dovish move from the Federal Reserve, raises the risk for higher inflation pressures, another long-term positive factor for gold.
A Big Week For Economic Data
For some analysts, This week, which sees a full calendar of important economic reports, could set the tone for equities, the U.S. dollar and gold prices. Some of the important reports that will garner the most market attention include February’s retail sales numbers, March ISM PMI data, to be released Monday and March’s nonfarm payrolls report, to be released Friday.
“If we see weak economic data come out next week then I would expect to see gold prices push higher on safe-haven flows,” said Ross Strachan, senior commodity economist at Capital Economics. “Anything that will push equities lower will be the biggest factor for gold in the medium term.”
Daniel Ghali, commodity strategist at TD Securities, said that he will be watching ISM manufacturing data closely as markets are laser-focused on growth expectations. Weak manufacturing data would add to growing growth fears.
“Poor data that highlights weak economic growth will reignite investors’ appetite for gold,” he said.
However, not all analysts see weak economic data saving gold prices in the near-term. Some have noted that weak economic data could be seen as deflationary and as a falling tide lowers all boats, gold could suffer with equities and the U.S. dollar.
Do Technicals Support Higher Gold Prices
Other analysts are negative on the yellow metal as the price action has caused some technical chart damage.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said that a lot of the economic data has been mixed, providing little direction for gold, but he added that it’s difficult to be bullish when traders look at the technicals.
“The recent failure to retake $1,325 and subsequent [decline] appears to have carved out the right shoulder of a head-and-shoulders top and arrives at a time when gold is moving from its stronger season of the year into its weaker season of the year, which runs through to the late summer,” he said.
Christopher Vecchio, senior currency strategist at DailyFX, said that he also doesn’t like gold’s technical short-term outlook. He added that the problem the gold market faces is that there is a growing disconnect between market expectations for an economic slowdown and what the data are showing.
“The big first-quarter slowdown that many economists were anticipating may not transpire,” he said. “Looking at the data this week, I don’t think we should expect to see a strong downturn in the numbers. That in turn will reduce the safe-haven appeal for gold.”
Levels To Watch
Vecchio added that technically he sees signs that the near-term uptrend in gold has exhausted itself and the markets needs to recalibrate. In the near-term he said that he is watching an important retracement level at $1,286 an ounce as initial support.
Chris Beauchamp, market analyst at IG, said that a break below $1,285 an ounce, could push gold prices to $1,277 an ounce.