Saxo Bank: Precious metals gradually recovering

Precious metals recovered following a few weeks of headwinds caused by rising yields and a stronger dollar, Ole Slot Hansen, head of department of strategy at Saxo Bank, told Trend.

He stressed that the geopolitical focus provided renewed support after President Trump cancelled his June meeting with North Korea’s Kim Jong Un. A sell-off in emerging market currencies, not least Turkey, together with political developments in Italy and Spain also helped give gold a boost.

"Precious metals, led by gold, have recently been caught in the crosshairs of a rising dollar and US 10-year bond yields climbing through the psychological 3% level. After dropping below $1,300/oz on May 15 gold has since managed to find support at $1,286/oz, a key technical support level," he said.

He noted that the return to relative safety above $1,300/oz has been supported by renewed focus on geopolitical developments.

"Adding to this the Federal Open Market Committee signaling that they’re in no hurry to hike rates more aggressively, despite the prospect of rising inflation," he added.

He stressed that faced with a deteriorating short-term price outlook, hedge funds, which are often more sensitive to adverse price changes than longer term investors, have been cutting bullish futures bets to a ten-month low at 31,000 lots, well below the five-year average of 105,000 lots.

Longer-term investors meanwhile, who often use exchange-traded funds, have shown a great deal of resilience, according to him.

"Throughout the recent weakness they have maintain a total holding close to a five-year high. It confirms our view that while funds must react to short-term price developments the limited exposure seen now could act as the engine that takes gold higher once the technical outlook improves enough to warrant buyers to return. Gold has managed to stabilise and climb higher after finding support at the important level of $1,286/oz. The return above $1,300/oz and more importantly a weekly close above $1,307/oz, the 200-day moving average is likely to set the stage for additional gains," he said.