Gold consolidates but remains on a 'golden cross path' higher – NDR's Tim Hayes
The gold market could continue to consolidate around $2,000 an ounce as the Federal Reserve prepares to raise interest rates one last time and then hold the line until inflation is under control, according to one analyst.
However, even this new holding pattern doesn't dimmish gold's potential. In a recent interview with Kitco News, Tim Hayes, chief global investment strategist at Ned Davis Research, said the trend in gold is clearly higher. He noted that in his Gold Watch report, nine of the 16 indicators he watches are flashing bullish signals.
Hayes' bullish outlook for gold comes as prices continue to trade on either side of $2,000. June gold futures last traded at $2008.20 an ounce, up 0.42% on the day. Hayes explained that the gold market benefits from solid tailwinds as commodity prices remain elevated and bond yields and the U.S. dollar continue to struggle.
"If we see continuing signs of the economy slowing, and the bond market continues to anticipate that the Federal is going to hold interest rates, then yields are going come down and that would help gold break out and regain its momentum," he said.
According to the CME FedWatch Tool, markets see an 80% chance that the Federal Reserve will raise interest rates one last time by 25 basis points next week. At the same time, markets are pricing in a potential rate cut after the summer.
Although market expectations of a rate cut this year might be premature, Hayes said that just the Fed holding interest rates should be enough to support gold as other tailwinds drive the precious metal.
Along with real and nominal yields, Hayes said that gold investors must keep an eye on the U.S. dollar. While the Federal Reserve appears to be on the cusp of ending its tightening cycle, the Bank of England and the European Central Bank are ramping up their rate hikes.
Hayes said the narrowing divergence in global monetary policy will continue to hurt the U.S. dollar and support gold prices.
"As long as the dollar is under downward pressure, that will be solid support for gold," he said.
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As for how long gold's current consolidation phase could last, Hayes said prices have a long way to go before the uptrend is significantly damaged.
Looking at gold's technical picture, Hayes said its bullish uptrend was confirmed in January when the 50-day moving average moved above its 200-day moving average, creating a "golden cross pattern."
At roughly around the same time, the U.S. dollar saw its 50-day moving average fall below its 200-day, forming a "death cross."
"We are nowhere near testing gold's 50-day moving average, but that has to start rolling over to signal that the uptrend has finished," he said. "I think what is probably more like is that we're pausing at these record levels, consolidating and maybe the market kind of works off some of the optimism and then the trend continues – gold's on a solid golden cross."
By
Neils Christensen
For Kitco News
Tim Moseley