(Kitco News) – The Federal Reserve surprised markets earlier in the week with an emergency 50-basis-point interest rate cut. This, in turn, has helped the gold market see its best weekly performance in 11 years.
With benchmark bond yields continuing to fall and markets expecting to see even lower interest rates in the near future, analysts say that it is difficult to be bearish on gold next week. According to some analysts, the biggest driver for gold remains the 10-year bond yield, which continues to hit fresh all-time lows.
On Friday, the yield on 10-year bonds fell to 0.70%. Meanwhile April gold futures last traded at $1,675 an ounce, up nearly 7% from last week. Many analysts have said that it’s only a matter of time before gold prices push above $1,700 an ounce.
Some analysts have noted that the three-week sell-off in equity markets and the precipitous drop in oil leaves gold as the best performing asset so far this year.
Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that gold should remain at the top of the investment spectrum compared to other commodities that are facing major demand issues in an environment of weak global growth. In a report release Friday, he said that he sees gold prices marching towards $1,800.
“Gold at the top of the macro-performance scorecard vs. crude oil — and copper near the bottom — are trends that we believe are gaining endurance, while the coronavirus outbreak simply aggravates preexisting conditions,” he said. “Gold is straightforward: Fed easing, increasing stock-market volatility and the lowest bond yields in history firm the foundation for the quasi-currency, store of value.”
Gold continues to look good, but risks remain
However, gold’s uptrend is expected to remain in place for most of the year, and analysts are warning investors to use some caution as volatility remains high.
On Friday the gold market was hit with some late-morning selling pressure, which removed some short-term momentum away from the precious metal. Looking ahead to next week, investors should get used to seeing this type of near-term price action, according to analysts.
Ryan McKay, commodity strategist at TD Securities, said that liquidity traps in the marketplace will be a significant risk for gold in the near-term as they eye a move towards $1,700 an ounce.
“As volatility picks up, you will see these rushes to liquidity that can cause gold to drop sharply,” he said.
Despite the risks in the marketplace, McKay added that the drops in gold are becoming shallower and shallower as investors’ demand for safe-haven assets dominate the market.
“Maybe you shouldn’t try to catch a falling knife, but after the drop when gold prices start to stabilize, these could be interesting buying opportunities for investors,” he said.
Ole Hansen, head of commodity strategy at Saxo Bank, said he also sees strong potential in gold, but added that the yellow metal will be vulnerable to deleveraging in the marketplace because of massive volatility.
“I don’t think we have seen the last of the deleveraging. Maybe it will take the VIX pushing to 50 to spark another deleveraging, but one will come and that is a risk for gold.”
However, Hansen added that weak economic growth will continue to support lower bond yields, which in turn are bullish for gold.
“I think you simply have to be bullish on gold. We haven’t even seen the worst for the global economy,” he said.
The ECB to following the Fed’s easing it’s just a question of how
Helping to drive gold prices will be continued easing by global central banks. Both the Reserve Bank of Australia and the Bank of Canada followed the Federal Reserve in easing interest rates this past week.
“All this money sloshing around financial markets, because of all this loose monetary policy, will be good for gold,” said Colin Cieszynski, chief market strategist, SIA Wealth Management.
All the attention will be focused on the Bank of England and the European Central Bank as they will both hold monetary policy meetings next week. The only problem these two central banks face is that interest rates are already so low. The ECB already has negative interest rates.
McKay said that TDS expects that the ECB won’t lower interest rates at its meeting next week but will announce “target measures.” He added that TDS economists see a rate cut in the second quarter.
Hansen said that there is no question that the ECB will have to act next week as the global economy is in difficult shape.
“The ECB is going to have to provide a life-line for the European economy. We don’t know what it will look like, but we know it will ultimately be good for gold,” he said.
More easing from the Fed?
Although the ECB will be in the spotlight next week, the Federal Reserve will remain a hot topic. Even after the Fed’s emergency cut markets are pricing in a more than 50% for another 50-basis-point cut following its March 18 meeting.
It’s more than just interest rates, fiscal stimulus will also help gold
Although all eyes are on the Federal Reserve, some analysts have noted that monetary policy will be ineffective in combating the coronavirus’ effects on economic growth. Analysts have said that fiscal programs that drive government debt higher could be the next major leg in gold’s long-term rally.
The comments come after President Donald Trump signed into law Friday an $8.3-spending program Congress created.
The funding measure includes over $3 billion for research and development of vaccines, test kits and medical treatments, $2.2 billion to aid public health activities on prevention, preparedness and response, and $1.25 billion to help international efforts aimed at reining in the virus.
Levels To Watch
With markets extremely bullish on gold in the near-term, most analysts and investors are watching critical resistance at $1,700 an ounce, which would also represent a new seven-year high for the precious metal.
“In this environment, I don’t think you can really look at a solid price target. I think you just look to the upside,” said Hansen.
On the downside, analysts say they are keeping an eye on initial support at $1,650 and then at $1,600.
Netflix (NFLX) stock slid as much as 9.6% Friday after the company gave a second quarter revenue forecast that missed estimates and announced it would stop reporting quarterly subscriber metrics closely watched by Wall Street.
On Thursday, Netflix guided to second quarter revenue of $9.49 billion, a miss compared to consensus estimates of $9.51 billion.
The company said it will stop reporting quarterly membership numbers starting next year, along with average revenue per member, or ARM.
“As we’ve evolved our pricing and plans from a single to multiple tiers with different price points depending on the country, each incremental paid membership has a very different business impact,” the company said.
Netflix reported first quarter earnings that beat across the board on Thursday, with another 9 million-plus subscribers added in the quarter.
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Subscriber additions of 9.3 million beat expectations of 4.8 million and followed the 13 million net additions the streamer added in the fourth quarter. The company added 1.7 million paying users in Q1 2023.
Revenue beat Bloomberg consensus estimates of $9.27 billion to hit $9.37 billion in the quarter, an increase of 14.8% compared to the same period last year as the streamer leaned on revenue initiatives like its crackdown on password-sharing and ad-supported tier, in addition to the recent price hikes on certain subscription plans.
Netflix’s stock has been on a tear in recent months, with shares currently trading near the high end of its 52-week range. Wall Street analysts had warned that high expectations heading into the print could serve as an inherent risk to the stock price.
Earnings per share (EPS) beat estimates in the quarter, with the company reporting EPS of $5.28, well above consensus expectations of $4.52 and nearly double the $2.88 EPS figure it reported in the year-ago period. Netflix guided to second quarter EPS of $4.68, ahead of consensus calls for $4.54.
Profitability metrics also came in strong, with operating margins sitting at 28.1% for the first quarter compared to 21% in the same period last year.
The company previously guided to full-year 2024 operating margins of 24% after the metric grew to 21% from 18% in 2023. Netflix expects margins to tick down slightly in Q2 to 26.6%.
Free cash flow came in at $2.14 billion in the quarter, above consensus calls of $1.9 billion.
Meanwhile, ARM ticked up 1% year over year — matching the fourth quarter results. Wall Street analysts expect ARM to pick up later this year as both the ad-tier impact and price hike effects take hold.
On the ads front, ad-tier memberships increased 65% quarter over quarter after rising nearly 70% sequentially in Q3 2023 and Q4 2023. The ads plan now accounts for over 40% of all Netflix sign-ups in the markets it’s offered in.
Netflix reported first quarter earnings after the bell on Thursday. REUTERS/Dado Ruvic/File Photo (REUTERS / Reuters)
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
Oil prices initially spiked on Friday due to unconfirmed reports of an Israeli missile strike on Iran.
Prices briefly reached above $90 per barrel before falling back as Iran denied the attack.
Iranian media reported activating their air defense systems, not an Israeli strike.
Oil prices gave up nearly all of early Friday’s gains after an Iranian official told Reuters that there hadn’t been a missile attack against Iran.
Oil surged by as much as $3 per barrel in Asian trade early on Friday after a U.S. official told ABC News today that Israel launched missile strikes against Iran in the early morning hours today. After briefly spiking to above $90 per barrel early on Friday in Asian trade, Brent fell back to $87.10 per barrel in the morning in Europe.
The news was later confirmed by Iranian media, which said the country’s air defense system took down three drones over the city of Isfahan, according to Al Jazeera. Flights to three cities including Tehran and Isfahan were suspended, Iranian media also reported.
Israel’s retaliation for Iran’s missile strikes last week was seen by most as a guarantee of escalation of the Middle East conflict since Iran had warned Tel Aviv that if it retaliates, so will Tehran in its turn and that retaliation would be on a greater scale than the missile strikes from last week. These developments were naturally seen as strongly bullish for oil prices.
However, hours after unconfirmed reports of an Israeli attack first emerged, Reuters quoted an Iranian official as saying that there was no missile strike carried out against Iran. The explosions that were heard in the large Iranian city of Isfahan were the result of the activation of the air defense systems of Iran, the official told Reuters.
Overall, Iran appears to downplay the event, with most official comments and news reports not mentioning Israel, Reuters notes.
The International Atomic Energy Agency (IAEA) said that “there is no damage to Iran’s nuclear sites,” confirming Iranian reports on the matter.
The Isfahan province is home to Iran’s nuclear site for uranium enrichment.
“Brent briefly soared back above $90 before reversing lower after Iranian media downplayed a retaliatory strike by Israel,” Saxo Bank said in a Friday note.
The $5 a barrel trading range in oil prices over the past week has been driven by traders attempting to “quantify the level of risk premium needed to reflect heightened tensions but with no impact on supply,” the bank said, adding “Expect prices to bid ahead of the weekend.”
At the time of writing Brent was trading at $87.34 and WTI at $83.14.
