Gold lacks direction at present but could break lower to test $1,100 in the very near term, ANZ said
“The right signals might be just around the corner,” the bank said in a note on Thursday. “To us, a downside break of the $1,180-1,220 per ounce range looks imminent.”
Gold has predominantly traded in a $1,175-1,225 range this year and was last little changed from the start of 2015 at $1,189 per ounce.
But the US Federal Reserve is on course to raise interest rates this year or early in 2016, which would raise the opportunity cost of holding gold and push investors into more yield-bearing assets.
“For this reason we have viewed gold prices negatively, and continue to do so,” ANZ said. “We still expect gold to test $1,100 per ounce in the short term, and it looks like the way things are evolving, gold may be due for another crack at it.”
Gold has not traded below $1,100 since March 2010.
The dollar index has spent the best part of the past three months retracing the strong gains made since the start of the year but is still up nearly eight percent at 97.45.
US treasuries have also provided support – the 10-year yield has gained more than 30 basis points over the past month, the bank noted.
Although sluggish US growth in the first three months of the year has stemmed the dollar’s advance and levelled yields around 2.2 percent, “it feels like gold will test fresh lows in the near term if the dollar can manage to sustain its recent run”, it said.
And physical demand remains soft and is unlikely to provide strong support for gold in the short term.
“China’s onshore stocks have built up once more, and should see import demand pull back and the Shanghai Gold Exchange trade in line with the international price [no/weak premium],” it added.
The Chinese gold market looks oversupplied, with total gold supply in the first quarter exceeding demand by 150 tonnes after 200 tonnes were added in the fourth quarter of 2014.
“While some of the surplus is due to higher gold lending volumes, which will eventually be drawn down, and higher pipeline stocks, the softness in retail gold demand over the past few quarters is a little concerning,” ANZ said.
China and India are the two largest consumers of gold, according to the World Gold Council, accounting for more than half of annual consumption. But a seasonal lull in wedding and festival activity will last for the next few months.
(Editing by Mark Shaw)
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