Gold screams oversold as Commerzbank hails good opportunity to buy
The week before the Memorial Day holiday weekend was brutal for gold, but with trading resuming Tuesday, bargain hunters stepped in to snap up some of the yellow metal.
Any why not buy now? Bloomberg reports that golds relative strength index shows that the metal is now entering oversold levels. Gold-linked exchange-trade funds are holding up so far. ETF investors see the current price weakness as being merely temporary and are taking advantage of price falls as a good opportunity to buy, Commerzbank analysts wrote in a note. We also believe that the current dip is merely a correction rather than a prolonged downswing.
And in contrast, an analysis of price-to-sales ratios shows that stocks are even more expensive than they were during the tech bubble in 2000.
With gold having shed about 6% in the month of May, investors know that as long as the metal holds the $1,200 level, the near-term picture is solid. With gold up, it suggests the Fed fears are already marked into the market, RBC Wealth Management exec George Gero said Tuesday of expectations that the Federal Reserve might soon raise interest rates.
Some poor U.S. economic data also gave gold a boost and dented stocks, with the Dow Jones turning negative for the month of May. A consumer confidence poll published by The Conference Board showed a plunge to 10-month lows. Meanwhile, two manufacturing gauges confirmed that the industrial sector remains in a veritable recession: The Chicago PMI barometer fell back into contraction mode, while the Dallas Federal Reserves survey logged its 17th straight month in negative territory.
Poll confirms Brexit fears rising: And Fed watchers no doubt have been watching recent polls showing that the tide could be turning toward a Brexit, or United Kingdom voters choosing to leave the European Union in a June 23 national referendum. A Guardian newspaper poll both online and via telephone found that a majority of Brits (52% versus 48%) favor a Brexit.
With the referendums outcome extremely uncertain, the U.S. Fed likely will be very loathe to raise interest rates at its June meeting, and that rate-hike threat has been perhaps the biggest reason for the metals pullback from $1,300.
Crucial jobs report due Friday: Investors also will be looking to Fridays nonfarm-payrolls report from the U.S. Labor Department for more clues on what the Fed might do with interest rates at its June meeting. A low number might almost ensure that the central bank stands pat, as it has set jobs creation as one of the rationales for its easy-money policies. Several economists already are predicting a disappointing set of numbers in the report.
A negative jobs report could give gold prices a leg up from recent lows, making the current level near $1,220 a bargain entry price for investors looking to get into precious metals or fortify their positions even further.
Another news event that investors should be aware of is Fed chief Janet Yellens speech set for June 6 in Philadelphia, at which she could give further clues on the central banks near-term policy. At this point, though, it appears that July would be the likeliest rate-hike month if one occurs soon. June is too close to the Brexit vote, while the September and November meetings are uncomfortably close to the U.S. presidential election.