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In this latest quarterly report on metals, our emphasis is that based on our analysis, gold should likely trade within a narrow range of about $170/oz this year and should be fairly valued between $1,130-1,300/oz as higher forecasted real yields put downward pressure on prices.
In this trading range, one needs to be tactical and technical when entering positions. With spot gold trading at around $1,250/oz earlier this NY morning we felt it was a good time to tactically go long given our expectations that the US dollar and long-term yields are approaching their short-term fair valuations. Investor positioning in gold has also normalized and is close to the past year’s midpoint.
Furthermore, we believe event risk premium reflected in the price of gold will likely expand in the coming months given the added political risk emanating from Europe. The upcoming European election calendar is busy this spring with the Netherlands announcing the results of its parliamentary elections later tonight and France holding its first round of elections in April.
Gold prices edged lower during European morning hours on Wednesday, pulling further away from its strongest level in a month as investors braced for the formal Brexit procedure to be triggered by the U.K. government later in the day.
Comex gold futures dropped $5.95, or around 0.5%, to $1,249.65 a troy ounce by 3:05AM 07:05GMT. Meanwhile, spot gold was down $1.90 at $1,250.10.
Gold creates its fresh highs since February 27 at $1,261.00 this week.
Market players also awaited comments from a number of Federal Reserve policymakers later in the session for more clues on the timing of the next U.S. rate hike.
Furthermore, In the US, investors are still trying to gauge the potential economic impact of President Trump’s policies. In regards to gold, we believe there is a chance new policies could lead to stronger than expected inflation, which could constrain US real yields in the coming months, actually keeping the opportunity cost of carrying gold at relatively minimum levels. Given all this, we entered a long Jun’17 gold trade recommendation earlier today.
