Gold continues to display a high degree of correlation with commodities and equities
Market analysts expect gold prices to continue advance after registering gains late this week. The technical charts and renewed concerns about the eurozone’s economic health for direction will be the main drives in the coming week’s trade.
Gold ended higher on Friday, but trades were mixed on the week. The most-active June gold contract on the Comex division of the New York Mercantile Exchange settled at $1,664.80 an ounce, up 1.34% on the week. May silver ended at $31.347 an ounce, down 0.96% on the week.
Gold prices rose by the end of the past week, supported by a drop in the U.S. dollar after lower-than-expected first-quarter gross domestic product. GDP growth came in at 2.2%, under expectations for 2.7% growth. Friday’s gold rally built on gains posted after the Federal Reserve’s monetary-policy committee Wednesday left interest rates unchanged from their ultra-low levels. Market players were eventually positive by the fact that monetary policy remains friendly to gold prices.
Some investors and traders are beginning to think that the Fed in the U.S. may have to come back with some sort of stimulus program, given the disappointing GDP figures and the rise in unemployment claims on Thursday. That supported precious metals.
Technical-chart analysts are generally bullish on gold for next week, citing how the market performed at this week’s lows. The market has bottomed out around the $1,620 level. In the coming week, market players are genrally bullish and expect the yellow metal to move higher. The first barrier for this market comes in around the $1,700 leve. Resistance is seen at $1,680, with $1,700 a potential overhead target which may be reached in the next two to four weeks.
Continued central-bank buying of gold is also a strong underlying fundamental for the yellow metal as central banks usually buy to add to foreign-exchange reserves. As a consequence, less downside volatility and a more sustainable bull market with much higher prices are projected in the years to come.
Looking ahead to next week, the direction of the U.S. dollar will influence gold, as concerns about Europe’s economic outlook rise again. Constant reminders of the continued problems the eurozone faces pop up in international news and underscore gold’s safe-haven aspects.
However, gold may be viewed not only as a safe haven, but even more as a risk asset. In that case, gold may stumble. Since the yellow metal continues to display a high degree of correlation with commodities and equities, it is also likely to suffer as a result, according to a note from Commerzbank.
