(Kitco News) - The gold market is seeing its best rally on Thursday since 2014 as intense fear sentiment grips markets, sending global equities and bond yields lower.
Overnight April Comex gold futures rallied to their highest point since early February 2015, hitting a session high of $1,244.10 an ounce. While prices are off those highs they are still holding on to significant gains, with April gold last trading at $1,232.90 an ounce, up more than 3% in the day. This is the second 3% rally this week.
Gold’s rally comes as the yield on 10-year U.S. Treasury bonds trade at 1.632%, its lowest point in a year and down more than 4% on the day. U.S. equity markets are also seeing significant weakness with the Dow Jones opening the day down 255 points at 15,658.
The rally in gold also comes as Sweden’s central bank pushed its interest rates further into negative territory, pressuring the country’s bonds yields lower. In a growing global trend, Riksbank cut its key interest rate to minus 0.50% Thursday and didn’t rule out further action.
“We are seeing a massive shift in bond yields around the world because of growing financial turmoil and gold is benefiting as a result,” said Matthew Turner, market analyst at Macquarie. “We also continue to see a shift in Interest-rate expectations following [Fed Chair Janet] Yellen’s testimony.”
Turner added that although the rally appears to have a life of its own, the gains look a little overdone. He added that positive economic data could create some strong selling pressure at these current levels.
Bernard Dahdah, precious metals strategist at Natixis, said that he wouldn’t be surprised to see gold at $1,250 an ounce in the near term as a result of the renewed momentum; however he also cautioned that the market could be overstating current market conditions.
“Yes there is uncertainty in global markets but it is not like the U.S. economy is collapsing,” he said. “It’s also not like Yellen was explicitly dovish. So I don’t know how much of this move has been exaggerated.”
Gold performance since the start of the year and its solid push above $1,200 an ounce is forcing at least one bearish bank to reevaluate its outlook for 2016. Dutch bank ABN Amro said that it will be updating its forecast next week.
In December, the bank said that it expected to see gold prices fall to fall below $1,000 an ounce and average the year around $950 an ounce.
“For gold prices we have been very negative mainly because of our call of U.S. dollar strength, higher U.S. Treasury yields and an improvement in sentiment. We have been clearly wrong on the outlook of precious metal prices so far this year,” they said in a report released Thursday.
“The main reasons behind this powerful move (are) weakness in the U.S. dollar, downward adjustment in Fed rate-hike expectations and a further deterioration in investor sentiment. In addition, as more global central banks signal further monetary easing ahead, gold and other precious metal prices are supported as low-yielding investment assets.”
As for where gold could be headed, commodity strategist at iiTrader said that a close above $1,232 an ounce would be bullish, with the next major resistance level between $1,269 an ounce and $1,271 an ounce. They added that they see support at between $1,205.50 an ounce and $1,201.40 an ounce.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
