(Kitco News) - The gold market is close to turning positive on the year as prices hold support above $1,900. Some analysts have noted that the gold market is just hitting its stride as the Federal Reserve is not ready to tighten its ultra-loose monetary policy even as inflation pressures continue to rise.
Carsten Fritsch, commodity analyst at Commerzbank, said that the gold market benefits as real interest rates remain in historically low negative territory. They added that even if the Federal Reserve is talking about tapper its bond-purchase program, it is not in any hurry to act on those discussions just yet.
"As long as the Fed refuses to change its monetary policy in response to rising inflation, real interest rates will continue sliding ever further into negative territory, which is good news for gold,' said Fritsch in a report Monday. "A glance at U.S. bond yields makes it clear that no rapid change in direction on the part of the U.S. Federal Reserve can be expected."
Rich Dvorak, market analyst at DailyFX.com, said that he is also looking at further gains in gold prices as the U.S. central bank continues to maintain its "wait-and-see" approach and continues to suggest that rising inflation pressures are transitory.
"Gold prices might even be headed for all-time highs if the U.S. Dollar weakens further and Treasury yields extend their slide," he said.
For many analysts, the catalyst for gold's next price move could come this Friday, when the U.S. Labor Department releases its nonfarm payrolls report for May. Last month the labor market data surprised everyone. The government said that 266,000 jobs were created in April, a significant miss as economists were expecting to see job growth of around 1 million.
"A notably better-than-expected jobs report could see the U.S. Dollar and yields pivot higher, which would likely steer precious metals lower. On the other hand, gold and silver prices could benefit from another round of disappointing NFP data as this would likely bolster the argument for Fed doves," said Dvorak.
Currently, economists are expecting that the U.S. economy created around 645,000 jobs in May. However, Chris Weston, head of research at Pepperstone, said that this wouldn't be enough to prompt the Federal Reserve from shifting its current stance on monetary policy.
"In my view, it would have to be close to 1m jobs, but even then, that would need the market to think the Fed are going to show a greater urgency to taper – and that seems incredibly low," he said.
Weston added that a strong employment number could create some selling pressure in gold; however, he would see that as a buying opportunity.
"The Fed has made it clear they are evidence-based and put much weight on the labor market. A strong print, while impossible to forecast, could get some excitement back in fairly sleepy markets, but it will have to be a real banger," he said.
