There is a deja-vu feeling now in gold—like a seen-it, done-it kind of thing.
The longs in the market are kind of resigned to the notion that both gold futures and bullion will remain trapped in the $1,500 to $1,550 per ounce range for a while—though they would like to see even higher prices, of course.
Short-sellers, meanwhile, have bets that the market will slide to $1,480, and subsequently touch $1,420, if it breaks next major support at $1,450.
Despite such optimism, like gold longs, some of them suspect that $1,500-$1,550 will be the range to crack.
Enters Canadian banking group TD and its projection for $1,600 gold.
In a note on Wednesday, the group’s broking arm, TD Securities, laid out its case on why the market could gain nearly $100 more from where it stood—despite some believing that the U.S. Federal Reserve was done with rate cuts for this year, after just two modest easings in July and September.
Look At Bond Yields For Now, Not At Fed
For those seeking greater clarity on gold, TD tells them to look not in the Fed’s direction for now, but at plunging U.S. bond yields, that investors have fled from most of this year toward safe-havens—like the yellow metal.
TD’s Head of Commodity Strategy Bart Melek, a renowned metals analyst, said:
“Some 15 trillion dollars worth of investment grade paper is yielding negatively and there is downside pressure on U.S. rates as investors aggressively seek yield.
The global economy is slowing, weighed down by trade and recent tightening, with Germany only one quarter worth of data away from a technical recession—a U.S.-China 'deal or no deal' notwithstanding.
It is also likely that after beating expectations since late-June, we are likely at a local maximum as markets have likely adjusted their expectations too positively and we are now due for disappointments on the data front.”
Fundamentals Show $1,600 Gold In The Cards
While gold longs will do good to ignore the Fed’s mixed signals on inflation and the economy, disappointing data could still push the growth-sensitive U.S. central bank into cutting rates again at the year-end and beyond.
TD Securities added:
“The fundamentals point to firming gold. $1,600 gold in the cards once focus shifts from headlines to fundamentals.”
In Thursday’s session, gold futures for December delivery settled up $2.90, or 0.2%, at $1,515.20 per ounce on the Comex division of the New York Mercantile Exchange.
Spot gold, reflective of trades in bullion, hovered at $1,503.
Over the past eight weeks, gold futures have held remarkably well above $1,500, only dropping to $1,499 and below in two instances—on Sept. 10 and Sept. 13.
On the flip side, futures hit four-week highs of $1,543.30 on Tuesday—establishing the other side of the $1,550 range.
This, as we alluded to earlier, is what is giving gold market participants the deja-vu feeling of a seen-it, done-it market. The last time Comex gold settled consistently in $1,400 territory was between June 20 and Aug. 6.
Investing.com has a “Neutral” call on gold futures in its Daily Technical Outlook, projecting a top-end resistance of $1,530.75 and bottom-most support of $1,496.70.
In my own analysis from two weeks ago, I opined that gold will be content to reach for the tree-tops on its way up, rather than head for the stars.
My theory was that, instead of trying to set a monumental milestone like a record high, gold will try to consolidate in the $1,500 territory for now.
Fed Could Cut Again Before Year-End
In a follow-up article a week later, I wrote that gold would have likely floundered briefly after the Fed’s second rate cut of a quarter-percentage point on Sept. 18, which would have disappointed longs.
Yet, the yellow metal could outperform in the fourth quarter, to finish the year in the high $1,600 bracket or more if the Fed returns to a more resolute easing mode in its October and December meetings.
If that momentum carries into 2020, gold could even break the all-time highs above $1,900 that it achieved in U.S. dollars back in 2011. Gold has already hit record highs in every currency that matters this year, bar the greenback.
TD’s outlook is almost similar, where it projects more U.S. rate cuts well into 2020, given the weak economic conditions it forecasts and the Fed’s tendency to formulate “policy-by-the-numbers ... which suggests dovish action.”
Some, like Windsor Brokers' analyst Slobodan Drvenica, still predict that gold could break under $1,500 in the near-term.
Said Drvenica:
“Recovery needs extension and close above $1,513 to signal an higher base formation at $1500 and reversal. Caution on loss of $1500 handle would risk a dip … towards $1487.”