TD Securities sees higher Gold prices in the second half of 2019
NEW YORK: As gold consolidates after last week’s solid gains, the precious-metals market is focusing on the political headlines, especially U.S. President Donald Trump’s State of the Union address scheduled for Tuesday evening.
Gold got a boost last week after the Federal Reserve chose to pause on rates and central banks continued to buy gold, said TD Securities head of global strategy Bart Melek and commodity strategist Ryan McKay.
“Sliding rates and weaker USD [U.S. dollar] following Fed Chair Jerome Powell statements … sent gold above the recent upper bound with $1,300/oz as new support,” Melek and McKay wrote. “News of near-record central-bank gold purchases also contributed to optimism surrounding the yellow metal.”
TD’s strategists project slightly lower gold prices this week as Trump’s State of the Union address comes into focus.
“We suspect that the high $1,290s and low $1,300s/oz are the new support levels, but we do not expect gold to surge for now,” Melek and McKay said. “Border wall and trade are likely to be key discussion points in his speech.”
Keeping gold at bay is also a contradictory storyline of a dovish Fed and strong U.S. employment and manufacturing data, the strategists added.
“Continued strength in the U.S. data will keep any precious-metal rallies under wraps. On a quiet week, precious metals will likely take their cues from political headlines, equities and the USD,” Melek and McKay said.
Strong macroeconomic data could also lead the Fed to hike once this year, the note pointed out.
“Since data is still good, which was emphasized by the very strong January jobs print, there continues to be ambiguity as far as we are concerned. U.S. fiscal stimulus and economic momentum will not likely turn negative for a few months yet,” the strategists said.
At the time of writing, gold was trading steady after being lifted up from daily lows. April Comex gold futures were last at $1,318.60, down 0.05% on the day.
Going forward, TD Securities sees higher prices in the second half of the year: “We look for gold north of $1,350-1,400/oz.”
The move higher will be triggered once the market is sure that the Fed is done with monetary policy tightening, Melek and McKay added.
“The USD weakness, low real rates, and central-bank purchases should all be catalysts for the move higher. Equity market volatility, and increased buying from China as gold leases comply to new regulations offers another set of reasons why we expect gold to jump much higher from current levels,” they said.
The highest level gold will see in the next two years is $1,400 in Q3 and Q4 of 2020, with the time before that slowly leading up to that advance, according to TD Securities.