U.S. stock index futures fell on Thursday on concerns the Federal Reserve could begin to rein in its massive monetary stimulus, while energy stocks tracked a slide in oil prices to their lowest in about three months.
New York (Aug 19) The gold market has made some impressive gains since last week's flash crash, which pushed the price briefly below $1,700 an ounce; however, the precious metal's performance in the near term could be limited, according to analysts at Metals Focus.
Although gold prices have rallied more than $100 from their recent lows, the market is struggling to break resistance just below $1,800 an ounce. Analysts at the British-based precious metals research firm said they don't think the market has enough momentum to push higher in the near term.
"Going forward, the upside for the gold price is likely to be restrained in the very short-term. Given recent mixed economic data, investors are still looking for clear guidelines on when the Fed will begin tapering its massive bond purchases, with all eyes on the next annual Jackson Hole conference in August," the analysts said.
The first headwind gold faces is a strengthening U.S. dollar. The U.S. dollar index is currently trading above 93 points and is near its highest level since early April.
"The pull-back in gold prices since mid-June owes much to a firmer dollar," the analysts said. "Interestingly, despite weaker than expected economic readings more recently and the slump in consumer sentiment, the dollar has still managed to hold near four-month highs. This in part reflects the fact that even with the recent slower economic momentum, the U.S. is still likely to be ahead of other advanced economies in the interest rate hike cycle."
Metals Focus also noted that gold's safe-haven allure has lost some of its luster, and the precious metal is competing against a significant momentum in equity markets. The analysts noted that gold's lack of safe-haven appeal comes as rising COVID-19 infections due to the delta variant are weighing on growth expectations.
"To a large extent, this suggests that investor sentiment is still only cautious. Furthermore, the lack of meaningful risk aversion explains the price action in stock markets as equity prices have held up near record highs," the analysts said. "With gold failing to exhibit some meaningful upside over the past few months, this has curtailed speculative inflows among short-term investors."
However, it is not all doom and gloom in the precious metals market. Despite near-term headwinds, Metals Focus remains optimistic that prices can push back to $1,900 an ounce by the end of the year.
"In essence, this is premised on assumptions that the recent dollar strength could unwind. After all, the still uncertain economic environment will keep concerns about aggressive Fed policy at bay," the analysts said. "If inflation does prove to be transitory in the coming months, rate hikes may not occur as early as some anticipate. Against this backdrop, nominal yields are projected to remain low and real yields negative for some time to come."
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