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Gold rush still has legs after recent pullback

Experts say there is room in the safe-haven asset to rally in the near to medium term amid global volatility

Singapore

GOLD may be a fine way to say it with love this Valentine's - that is, if pundits' upbeat outlook on the precious metal holds up.

While gold prices have pulled back and are headed for a weekly loss after hitting an eight-month high a week ago when it crossed a key psychological mark of US$1,300 per ounce, experts say there is glitter left for the safe-haven asset to rally in the near to medium term amid a volatile global setting.

Last week, gold prices breached the critical resistance level to scale US$1,326, thanks in large part to the US Federal Reserve's unexpected dovish tone after it left its benchmark rates unchanged as expected.

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This is a "massive gold changer for gold", said OCBC Bank economist Howie Lee.

The US dollar weakened on the news and this in turn, saw a spike in the price of yellow metal which historically has an inverse relationship with the greenback.

But the recent recovery in the US dollar plus fading enthusiasm for safe havens and the release of upbeat US non-farm payroll which suggested that the world's largest economy is riding a strong momentum have led the bullion to lose some momentum.

"The bulls must defend this level (US$1,300), otherwise, it is highly likely that the bears will drive the price all the way to US$1,270 mark," said Naeem Aslam, chief market analyst for Think Markets in London.

In gold's favour, there are several "ticking time bombs" that could fuel its ascent, according to OCBC's Mr Lee, who expects the yellow metal to scale towards US$1,350 in the near term. These factors include unresolved US-China trade tensions, Brexit uncertainties plus a slowing global economy.

The Fed's "patient" approach in monetary policy is another as it suggests that interest rates are going to stay at the current level for an extended period of time, sending the US dollar weaker and treasury yields lower, said CMC Markets' analyst Margaret Yang.

"The macroeconomic conditions in emerging markets will be an important factor. Physical demand for the precious metal could decline if growth in emerging markets cools due to ongoing trade tensions," said FXTM research analyst Lukman Otunuga.

Gold's technical readings are rosy with daily and weekly timeframes indicating a bullish trend. Mr Lukman reckoned that if the US$1,300 level proves to be a reliable support, gold prices could challenge US$1,350 and US$1,375 in the medium to longer term.

Could the precious metal hit US$1,400? It's going to be a struggle, say experts. "That looks like a bold forecast but not entirely impossible if central banks go back to easing mode this year and/or if geopolitical tensions escalate to spur safety-hunting," said Ms Yang. But first, prices need to break out at the US$1,360 mark - no easy feat considering the metal's failed attempts to do so in the past five years.

One dampener could be the recent "coordinated dovish strike" from various central banks including the Fed, Reserve Bank of Australia, the European Central Bank and more recently, the Bank of England. India's central bank surprised with a rate cut on Thursday.

"This implies that the inflation outlook will be modest at best and it removes another reason to buy gold, as an inflation hedge," said Oanda senior market analyst Jeffrey Halley.

Mr Halley added: "It is far too soon for gold bugs to start getting excited about hitting multi-year highs again in the short term. The gold rally is a grind higher and not a rush. That said, the price action is constructive, and given the global economic event risk coming up in the next few months, gold could quite comfortably trade in a US$1,300-US$1,350 range."

READ MORE: Gold stumbles on US dollar vigour