“[The yellow metal] saw a knee-jerk reaction to the Fed announcement on what appeared to be a more dovish stance. But, it quickly subsided when investors realized that it is pretty much the status quo,” ANZ’s senior commodity strategist Daniel Hynes told Kitco News in a telephone interview on Thursday.
jumped from $1,305 to $1,314 immediately after the Fed’s decision to keep its benchmark overnight lending rate in a target range of between 1.50%-1.75%. But, those gains were quickly erased, with gold back to trading flat on the day. June futures were last seen at $1,309.30, up 0.28% on the day.
The announcement did not change anything on the fundamental level, Hynes said, which could encourage investors to turn their attention back to the direction of the U.S. dollar and geopolitical risks.
ANZ does not see gold falling below the key $1,300 support level, especially if the yellow metal didn’t do so immediately after the Fed announcement.
“The $1,300 level is pretty strong and will likely hold. Something will need to fundamentally change to really push it through that level. And certainly, if the FOMC meeting didn’t present that, the likelihood of a breakthrough there is pretty low,” Hynes noted.
Any weakness around $1,300 will be “bought into,” the strategist added, pointing towards an increase in investor demand.
ANZ’s three-month price target for gold is $1,345 an ounce. And even though 2018 has been somewhat disappointing for Hynes in terms of gold’s movement, the short-term outlook is more positive.
“Gold has probably underperformed against my expectations. Certainly, in the early part of the year we didn’t see any sustained reaction to global events,” Hynes said. “But, there is a spectrum of high volatility and we’ll certainly see that linger a little bit longer.”
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Geopolitical risks Hynes is watching are the Iran nuclear deal and U.S.-China trade spat.
“Volatility is starting to pick up. These issues will become a much more important driver of gold price, which is what we’ll be focusing on in the short term,” Hynes explained. “Rising global tensions would be quite supportive for safe-haven buying.”
For example, if the U.S. chooses to pull out the Iran deal, the pressure of additional sanctions could lead Iran “towards building or reinvigorating its nuclear weapons program,” Hynes said.
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