Gold prices stalled on Thursday ahead of a European Central Bank (ECB) policy meeting expected to present a cut in economic growth forecasts.
The spot gold was flat at 1,285.94 USD per ounce, trading close to a more than five-week low hit this week. The spot gold prices hit a 10-month peak of 1,346.73 USD on February 20 but have since lost ground as the dollar revived and US Treasury yields rose. According to the analysts, the key short-term support for gold comes in at 1,280 USD, while resistance is seen around 1,300 USD.
The US gold futures were down by 0.1% at 1,286.50 USD per ounce. Noteworthy is the high of 1291.80 USD that is effectively stalling at the current resistance level. This resistance level is based on a 38% Fibonacci retracement which covers the entire length of the last leg of this rally which began at 1,195 USD and ended at 1,350 USD. This level falls at 1,291.20 USD and is the first price point that needs to be taken out to obtain technical evidence that the current correction has run its course and concluded.
Traders continue to wait for Friday’s release of the U.S. jobs report. Currently, it is forecasted to come in at approximately 180,000 jobs added last month. Today’s ADP national employment report revealed that 183,000 jobs were added last month in line with expectations.
Among other precious metals, the price of palladium rose by 0.5% to 1,546.04 USD per ounce and silver gained 0.1% to 15.09 USD per ounce. Silver touched a low of 15 USD for a second day running, representing its weakest since the end of December.
Meanwhile, platinum dipped 0.1% to 826.22 USD per ounce.
Can gold price reach 2,000 USD?
Gold did not start the third month of the year particularly strong. However, this is not a great surprise, at least historically. Because March is traditionally referred to as the worst month in terms of price depiction of the metal.
Over the years, gold has lost about 1% of its value in March, making the third month of the year good for purchases. This can also be seen from the table below, which illustrates the historical performance of the precious metal during the different months of the year.
The gold price has retreated from its 10-month high since mid-February, leaving investors wondering how far the downturn may continue, amid geopolitical and economic problems, Brexit’s uncertainty, and the trade dispute between China and the United States.
After four months of profits for the precious metal, which was the longest series since 2016, the gold started March with serious declines. However, this does not seem to despair the market participants, and many experts still believe that the level at which gold is directed is actually 2,000 USD per ounce.
“Gold prices have reached the upper end of the price range they have traded over the past five years, and it naturally has some downward pressure on the metal”, said Rob Haworth, a senior investment strategist in the U.S. Bank Wealth Management, referring to the level of 1,350-1,400 USD per ounce. “Without further alleviating financial conditions, rising inflation or volatility in the stock markets, the price of gold will likely fight these key levels of resistance”, added the expert.
Gold still faces supply-side challenges, and any increase in demand may trigger appreciation. At the same time, the gold mining sector is witnessing extremely strong consolidation.
“Mergers and acquisitions activity reflects the increasing difficulties of companies in the discovery and extraction of gold reserves”, said Will Rhind, chief executive officer of GraniteShares. “Consolidating the gold mining sector highlights the existing difficulties and shortages in the supply of gold that support metal prices” added he.
In terms of demand, central banks continue to be net buyers, with their purchases amounted to 651.5 metric tons in the past year, the highest of more than 50 years. In an environment of geopolitical uncertainty and economic anxiety, central banks are likely to continue to be net buyers of gold in the current 2019.
Central bank purchases are a key factor in the price of gold as they are massive institutional players and even a slight increase in demand from them could mean a serious upward movement in the price of the metal in a limited supply environment. However, gold purchases by central banks do not necessarily mean they are positive about the price of the metal, which is likely to mean they are concerned about the dollar’s prospects and hedge their exposures in this regard.
The US deficits worth trillions of dollars under President Donald Trump and the rising fiscal imbalances will make central banks with large dollar reserves more nervous about the US dollar.
Considering the scale of risks, they may raise the gold reserves at expense of the US dollar, which may raise the price to a record 2,000 USD per ounce within the next 24 months.