Kitco News) – The gold market is starting the week, holding critical support at $1,700 an ounce. Still, some market analysts warn investors that prices could be heading lower in the near-term as market sentiment is shifting.
Gold prices are trying to start the week on a positive note after seeing last week’s most significant loss since early March. In a relatively quiet Asian trading session, June gold futures last traded at $1,704.60 an ounce, up 0.22% on the day.
However, some analysts are warning that investors should keep an eye on the downside as prices could test support around $1,650 an ounce in the near-term.
Ole Hansen, head of commodity strategy at Saxo Bank, said in his weekly report that headlines about countries starting to ease their lockdown restrictions are creating some optimism in financial markets that are weighing on gold prices. He added that there are growing expectations that the global economy will see a V-shape recovery from the worst downturn this century.
Hansen said that this shift in momentum could push gold prices to test near-term support at $1,655 and then at $1,634. However, he added that he is looking past the near-term downtrend.
“We view the road to recovery unfortunately as being anything but V-shaped. While the short-term technical outlook for gold has deteriorated, the long-term fundamentals have not,” he said.
Marc Chandler, chief market strategist at Bannockburn Global Forex, noted in a report Sunday that gold has been consolidating in a wide range of $50 either side of $1,700 an ounce.
“The MACD and the Slow Stochastic warn of the downside risk,” he said.
David Song, market strategist at DailyFX.com, said that gold appears to be taking a breather as central banks start to reign in their unprecedented emergency measures to support the faltering economy.
Last week, Federal Reserve Chairman signaled that the U.S. central bank would do whatever it takes to support the U.S. economy. He noted that in the current emergency, “deficits don’t matter.” However, he added that he sees the current monetary policy stance as appropriate.
After the Federal Reserve’s monetary policy meeting, Christine Lagarde, President of the European Central Bank, said that her council is ready to act to support the European economy. However, market players were disappointed that the ECB didn’t take actual preemptive steps to increase their emergency purchase programs.
Song said that other central banks could signal a more cautious approach moving forward and this could weigh on the precious metal.
“The recent pullback in gold may gather pace in May as the Reserve Bank of Australia (RBA) and Bank of England (BoE) are expected to keep interest rates at a record low, and the wait-and-see approach for monetary policy may dampen the appeal of bullion as governments across the advance economies unveil plans to roll back lockdown laws,” he said in a report this weekend.
“With that said, the low interest rate environment along with the ballooning central bank balance sheets may continue to act as a backstop for bullion as market participants look for an alternative to fiat-currencies,” he added.
Song said that he is also watching initial support at $1,655 and $1,634 an ounce.