Gold Investors: Focus on the yield curve and not the dollar – Analysts

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(Kitco News) – For the third consecutive week, the gold market has managed to gain another gain as the precious metal continues to struggle against a US dollar resistant.

However, many analysts warn investors to ignore short-term volatility due to the US dollar and focus on the long-term uptrend after the US Federal Reserve has softened, reducing its growth and of interest rates for 2019.

Optimism remains strong in the gold market even though gold could only keep some gains for the week. April gold futures traded for the last time at $ 1,312.40 an ounce, up 0.73% from last week. Harm to the yellow metal has been the persistent strength of the index in US dollars, which ends the week roughly unchanged after suffering a loss of nearly 1% after the US central bank announced that it did not expect any rate hike this year, down from the forecast of two hike rates in December.

At the same time, the central bank also lowered its growth forecasts, recording GDP growth of 2.1% in 2019, compared to 2.3% in December.

Many commodities analysts overlook the recent strength of the US dollar, which is more closely tied to the weakness of other currencies than the absolute strength of the US dollar. The euro fell sharply on Friday as a result of a disappointing feeling in the German manufacturing sector.

The pound sterling continues to suffer from the national drama surrounding the plan to exit the European Union.

"We are currently in a world where it is not easy to replace the US dollar," said David Madden, market analyst at CMC Markets. "To blend the metaphors, the US dollar is the dog with the least amount of chips."

Neil Mellor, the currency strategist of the New York Mellon Bank, said the US dollar remained resilient and that gold was stuck as markets waited to see whether the Fed's plan to boost the economy and the economy. inflation in the United States would materialize.

"Until we see an increase in inflation, gold will struggle to push higher," he said.

Focus on US interest rates, not the US dollar

Bill Baruch, president of Blue Line Futures, said that although gold is suffering from the continued strength of the US dollar, he sees a long-term potential for gold as bond yields fall.

"The gold will work higher and its time to shine will come, you just have to be patient," he said. "Lower yields are the long-term fuel for gold."

Mr. Baruch added that the transfer of the Federal Reserve, removing the expectation of two rate hikes from the negotiating table, looked like a desperate move by the US Central Bank.

"Why did they make such a dovish move? You must think that they see real shit, he says. "The Fed is scared and that's the problem and that's why you want to be a long gold and very long treasure."

Recession fears are mounting

Adam Button, chief executive of ForexLive.com, said he also ignored the movement of gold prices in the near term and that he was not interested in the long-term situation. term.

He added that he was reviewing the message sent by the bond market. Friday was a historic day for the US bond market, it was the first time that 3-month bond yields outperformed 10-year Treasury yields. This is the first time that the yield curve has reversed since 2007; an inverse yield curve has been a consistent indicator of recession.

"The bond market sends a terrifying signal for economic growth," he said. "If the yield curve is correct, we are heading to a recession a year from now, so where is the gold going?

Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the annual In Gold We Trust report, said he expects recession fears to continue to grow, which would be positive for the company. # 39; gold.

"The drastic measures taken by the Fed indicate that they see something bad to hide in the financial markets and that investors can not ignore it," he said.

Mr Stoeferle, however, added that the price of gold had to push long – term critical resistance to $ 1,360 before investors returned to the gold market.

How to play gold

Baruch said that because of the strength of the US dollar, investors should take a longer-term approach to their outlook on gold.

He added that one of his favorite pieces was buying a $ 1,350 purchase option in June or even buying a $ 1,330 spread option in June.

In the spread option, investors would buy a call option of $ 1,330 in June while selling a call option of $ 1,350 in June.