How much lower can gold price go? Alain Corbani

How much lower can gold price go? Alain Corbani

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Gold has broken a critical support level, but there is not much downside left, said Alain Corbani, portfolio manager of Finance SA, who forecasts $2,500 an ounce for gold's upside target.

The metal will be caught between conflicting macroeconomic forces next year: slightly higher negative real interest rates, but a weakening U.S. dollar. While gold has a negative correlation with negative real rates, ultimately, the dollar will prevail as the dominant driver of gold during this current phase of the commodity cycle.

“The next phase of this bull cycle will rely on a lower U.S. dollar and this is really the main, key factor that will allow the price of gold to move much higher,” he said.

Historically, real interest rates have held the strongest, most consistent inverse relationship with gold, Corbani said, but sometimes, the dollar can take precedence in driving gold.

“In a bull cycle, you have at least two phases. The first one is based on lower real rates. The second phase usually happens with the lower currency, and we are in that phase,” he said.

By Kitco News

David

Asia shares off to cautious start, gold recoils

Asia shares off to cautious start, gold recoils

Reuters

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.2% in slow early trade, with a pause needed after five straight weeks of gains. Japan's Nikkei .N225 fell 1.3% and South Korea .KS11 0.1%.

E-Mini futures for the S&P 500 ESc1 slipped 0.7%, having jumped last week on hopes some U.S. states would soon start to re-open their economies.

U.S. President Donald Trump said Sunday that Republicans were “close” to getting a deal with Democrats on a support package for small business.

But the U.S. Centers for Disease Control and Prevention reported an increase of 29,916 in new infections and said the number of deaths had risen by 1,759 to 37,202.

The S&P 500 .SPX has still rallied 30% from its March low, thanks in part to the extreme easing steps taken by the Federal Reserve. The Fed has bought nearly $1.3 trillion of Treasuries alone, and many billions of non-sovereign debt it would historically have never gone near.

“The Fed will be a major buyer of risky assets in the coming months, and has displayed its willingness to backstop virtually any part of the domestic financial system in trouble,” said Oliver Jones, a senior markets economist at Capital Economics.

Yet the particular composition of the S&P 500 was also a major factor, he added, as three sectors relatively resilient to a virus-induced lockdown — IT, communications services and healthcare — make up around 50% of the index.

Indeed, Microsoft, Apple, Amazon, Alphabet and Facebook account for more than a fifth of the index.

“What’s more, the S&P 500 is skewed towards a few ultra-large firms, some of which are also in those sectors. Their sheer size might make them better able to weather a few months of dramatically-low revenues than most.”

The rebound in the S&P 500 therefore likely overstated optimism on the economy, Jones argued, noting European benchmark equities indices and U.S. small cap indices were still in bear market territory.

Bond markets suggested investors expected tough economic times ahead with yields on U.S. 10-year Treasuries US10YT=RR steady at 0.65%, from 1.91% at the start of the year.

That decline has shrunk the U.S. dollar’s yield advantage over its peers and left it rangebound in recent weeks. So far in April, the dollar index =USD has wandered between 98.813 and 100.940 and was last at 99.791.

The dollar was a fraction firmer on the yen on Monday at 107.63 JPY= but again well within recent ranges, while the euro idled at $1.0868 EUR=.

Gold had recoiled to $1,676 per ounce XAU=, having touched a 7-1/2 peak of $1,746.50 last week

Oil prices remained under pressure as the global lockdown saw fuel demand evaporate, leaving so much extra supply countries were finding it hard to find space to store it.

 

So great was the near-term glut that the May futures contract for U.S. crude was trading down 7% at $16.96 a barrel CLc1, while June was standing at $24.28 CLc2.

 

Brent crude LCOc1 futures have already rolled over into June and that contract was off 32 cents at $27.75 a barrel.

 

By Gary Wagner

David