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Gold poised to hit $2,250 Q2 target, say economists

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Gold dipped 1.1% after the US inflation print came in higher than expected, with economists at TD Securities saying yellow metal may drift modestly lower toward the $2,025-2,100 range.

The February CPI came in hotter than expected, with core inflation up 0.4% MoM to 3.8% YoY, and headline inflation up 0.4% MoM to 3.2% YoY. The implication is that the Federal Reserve may not be ready to cut rates just yet.

“The outsized rally which took Gold up from the $2,020s to nearly $2,200 may well give back some gains, as some of the recent long extensions are liquidated or buying momentum slows. It would not be a surprise to see Gold drift modestly lower toward the $2,025-2,100 range,” said economists at TD Securities.

The Fed is gearing up to cut rates and despite a disappointing CPI print, US monetary policy authorities are likely to judge that price pressures are coming off.

“As long as economic data continues to soften, Gold is well positioned to hit our $2,250 Q2 target,” the economists added.

Meanwhile, economists at ANZ Bank said the higher-than-expected US inflation number weighed on Gold.

“Gold prices came under pressure after the US inflation print came in higher than expected. This led market pricing for a June rate cut to decline from 93% to 77%. The FOMC has said it needs more evidence to see inflation heading towards the 2% target before it starts cutting interest rates,” the ANZ economists said.

Monetary policy crucial

“Easing monetary policy will be crucial to push Gold prices higher.”

The strong rise in the price of Gold since the beginning of March has been facilitated by purchases on the part of speculative financial investors, analysts at Commerzbank said.

According to the CFTC statistics on market positioning published on Friday, the net long positions of speculative financial investors rose to 109,800 contracts in the week up to and including March 5, which almost doubled and corresponded to purchases of the equivalent of 167 tons of gold on the futures market within a week.

“As the Gold price has risen by a further 3% since the reporting date, speculative net long positions are also likely to have increased again,” the Commerzbank analysts said.

“However, this also increases the setback potential for the Gold price should these short-term oriented investors take profits. One trigger could be the US inflation data, surprising to the upside and thus putting a damper on expectations of interest rate cuts.”

The Commerzbank analysts concluded that the Relative Strength Index (RSI), which has risen to an extremely high level, also calls for caution, indicating a short-term overshooting.

(Source: OANDA)