Gold forecast to hold in $1,140-$1,225/oz range in May – INTL FCStone

Otmane El Rhazi from The Bullion Desk.

Gold prices should remain broadly rangebound in May as support from a weaker dollar should be offset by more hawkish Federal Reserve sentiment and weak investment demand, INTL FCStone said in a report.

Gold did not do much of anything during the course of April, trading within a well established range of $1,165 to $1,245.

“We still like gold going into May due to the growing acceleration in the dollar selloff, coupled with signs that the US economy’s soft patch may continue,” INTL FCStone’s Edward Meir said. “Although gold should benefit from both elements, we are well aware of the deteriorating technicals as well, which is why we are forecasting a $1,140-$1,225 range for May.”

“We suspect that gold is being weighed down by other variables, including a rather bearish interpretation of the latest Fed policy statement and reports of continued weak physical and investment demand,” he added.

The members of the Fed’s policy board are locked in what’s become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008. The current market consensus is that the first hike will happen in the fourth quarter.

The FOMC said that economic growth slowed during the winter months, while the pace of job growth “moderated”, however, it placed some of the blame on “transitory factors” such as bad weather.

“The central bank did not seem to be moved by the evident weakness in first quarter economic activity, deeming the lacklustre performance as being transitory and thus telling investors that rate increases were still on track,” INTL FCStone said.

In the physical markets, the latest GFMS first quarter survey reveals a 12 percent decline in Chinese jewellery buying and a 10 percent drop in coin and bar demand, which helped contribute to a nine percent fall in overall global gold buying during the period.

“And although Indian jewellery consumption rose two percent in the quarter, this was not enough to offset the weakness evident in other markets. Moreover, Indian gold investment also weakened in the first quarter, hitting its lowest level since 2009,” Meir said.

“Out of the US, demand clocked in at its lowest first-quarter reading since 2007, as weather took its toll. On the supply side, despite reports of mine and CapEx cutbacks, GFMS says that gold production was largely flat in the first quarter, while mine production was actually up one percent,” he concluded.

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