Gold sprints back to 1-year highs as Wall Street legend charts bullions breakout
Hitting fresh one-year highs Thursday, gold marched firmly ahead on the eve of Fridays widely watched U.S. employment report for February, known as the nonfarm-payrolls report, or NFP.
Spot gold Thursday blazed a fresh trail to one-year highs above $1,265 in late-afternoon trading, following the lead of the futures contract for April, which earlier reached its highest settlement level since Feb. 5, 2015, MarketWatch reported. Golds counterpart, silver, also gained about 1.4% to touch $15.13 and was moving even higher in the afternoon session.
The news on the U.S. economy continued to look mediocre to bad: U.S. productivity fell 2.2% in the fourth quarter; initial jobless claims rose by 6,000 to 278,000; the ISM services-sector index beat expectations but still fell; and factory orders rose 1.6% but missed forecasts of a 2% gain.
Dallas Federal Reserve chief Robert Kaplan sounded a note of caution on the economy, urging patience on enacting the next interest-rate hike and also warning that oil-related defaults could cause a negative ripple effect across the financial sector.
Wall Street on average is expecting the jobs number Friday to come in at about 190,000. A disastrous figure could send the yellow metal galloping toward $1,300.
Formidable resistance at $1,550: Golds resurgence has sparked a slew of renewed bullishness and revised forecasts from some high-profile analysts and institutions. Famed Wall Street technician Louise Yamada, who has been bearish on gold for years now, published an optimistic note titled Gold breaks out.
Noting the metals advance above its 200-day moving average, Yamada wrote, If gold retains strength over the days and weeks ahead, price could eventually overcome the sequential peaks at 1,300 (to lift also above the broken 2005 uptrend), as well as 1,350, 1,385 (to address the 2011 downtrend) and 1,440. Moving through these levels would bring price to a position of challenging the two-year formidable resistance at 1,550 (dashed horizontal line) over time. Gold may be able to achieve at least some of these targets over the weeks-to-months ahead.
Bank cites uncertainty in lifting target: And Germanys Commerzbank, which has been relatively bullish during 2016, just raised its price target by $50, setting a year-end price of $1,250.
We believe gold is well supported in the market environment of continued high uncertainty and negative interest rates, it wrote.
And perhaps most notably, JPMorgan analyst Jan Loeys revealed the investment bank is now underweight (UW) stocks and is overweight (OW) gold.
The fundamentals of growth, earnings and recession risk have not improved, and if anything have worsened. We remain wary of the near-empty ammo box of policy makers, Loeys wrote.
Recession odds now at 33%: Our 12-month-out U.S. recession odds have risen to 1/3, while equity-implied odds have instead fallen to near 1/5.But even with no recession this year or next, we see U.S. earnings rising only slowly by low single digits and see little to boost multiples. The eventual recession should bring U.S. stocks down some 30%, creating a strong downward risk skew to returns over the next few years.
Our portfolio is now 5% UW Equities, the first UW this cycle. In Commodities, be short gas oil and base metals but OW gold.
With the jobs report out Friday, prepare for potential fireworks across the financial markets. Precious metals could take off on a gloomy number, but be prepared for buying opportunities in bullion if the employment stats surprise to the upside.