Gold continued its breathtaking advance Monday by topping $1,300 for the first time since January 2015, feeding off a trifecta of bullish drivers from last week: inaction from both the Federal Reserve and the Bank of Japan, as well as a mediocre U.S. GDP report.
The yellow metal peaked at $1,303.60 before reversing slightly on profit taking. Meanwhile, silver one of the top-performing assets of April eased somewhat near $17.50. Gold gained more than 4% in April, while silver racked up a 15% advance for the month.
Just the start of a push higher for gold?: Dollar weakness, enabled by the Feds refusal to raise interest rates last week as well as similar paralysis from the Bank of Japan, has been the key driver for gold. We believe that theres a lot of things that are ripe for precious metals right now: a low-interest-rate environment, interest-rate expectations backing down again, and we have a weaker dollar, EverBank World Markets President Chris Gaffney told Bloomberg. We believe this is just the start of a push higher for the precious metals.
The dollar was the reason behind the spike up (last week), and we broke all the important levels on the upside, MKS trader Afshin Nabavi told Reuters. $1,285 was a huge number, and we got through $1,290 pretty easily. $1,300 is going to be a very important one. I think were heading for new numbers on the upside.
$1,325 is really the next resistance level, Trading Advantage strategist Todd Bauer added. Theres a lot of dead air between $1,325 and $1,400.
Gold has a nice tailwind at the moment with the dollar weak and equity markets teetering to the downside, Altavest co-founder Michael Armbruster told MarketWatch. I wouldnt be surprised to see gold near $1,400 in the next month.
Gold partying like its 2007 again: With gold having advanced 22% for the year with its run above $1,300, CNBC recalled similarities between now and 2007. Going back to 1980, there has been only year in which gold has outperformed the S&P by 20% or more while the latter was positive on the year: 2007, it reported. Both gold and the fear-measuring CBOE Volatility Index surged in the second half of that year, even as stocks maintained their footing. The [stock] crash, of course, came in 2008.
A weak PCE inflation report Friday and another contracting PMI manufacturing number continue to suggest an anemic U.S. economy. The chances of a rate hike at any point this year are fast disappearing, for both economic and political reasons, according to American College of Financial Services CEP Robert R. Johnson.
The Fed meeting calendar is going to make it exceedingly difficult for the Fed to move on rates the rest of this year, he wrote. The Fed has five more meetings scheduled in June, July, September, November, and December. There is virtually no chance of rate increases in June and November. The June meeting is eight days prior to the Brexit referendum in the UK and the November meeting is a week before the U.S. presidential election. Moves prior to those political events are highly unlikely, as the Fed doesnt want to be accused of influencing key votes. That leaves July, September, and December for possible rate hikes. I would even take September off the table because of the proximity to the presidential election.
Survey projects higher prices: Even before golds runup to $1,300, analysts already were revising their forecasts. A survey of 30 gold experts at banks and trading firms returned an average 2016 gold price forecast of $1,209 an ounce, up from $1,118 in a similar poll in January, Reuters reported. The price is expected to rise steadily this year, peaking at an average $1,250 an ounce in the fourth quarter, the survey showed, before extending gains to average $1,300 an ounce in 2017. That would be its highest annual average since 2013. At the rate gold is moving, these projections already look like underestimations.
This weeks major data point will be the Labor Departments nonfarm-payrolls report for April. With one of the Feds mandates being lowering the unemployment rate, the report could shed more light on second-quarter growth and influence the Feds decision process on interest rates.