Gold To Tackle 'Great Wall' Of Resistance Next Week - Analysts
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(Kitco News) - Gold will be on the offensive next week, once again trying to break through the $1,300 level where it faces a “great wall” of resistance, analysts told Kitco News.
Gold prices lingered just above $1,290 on Friday as markets digested Federal Reserve Chair Janet Yellen’s speech and waited for comments from European Central Bank President Mario at the annual central bankers’ symposium in Jackson Hole, Wyoming.
There was a consensus among analysts that gold prices are likely to increase next week, but will have a tough time breaking the heavy resistance wall that has built up. Expect range-bound trading between $1,280-1,300, they said.
The yellow metal rose more than 2.3% in August alone and roughly 12.5% since the start of the year. On Friday, December Comex gold was last seen at $1,296.40, up 0.34% on the day.
“I’m on the bullish side. Gold will attempt $1,300, but probably will not breach it. It will be testing the highs for the fifth time, but will remain range-bound here,” Bart Melek, head of global strategy at TD Securities, told Kitco News.
Every single time gold attempts to break through resistance, the task becomes more challenging, added Jeffrey Nichols, managing director at American Precious Metals Advisors.
“Traders will need something dramatic to push gold out of its current range, which is getting tighter and tighter each time gold fails to break out higher,” Nichols said. “We may test $1,300 again. But to break through and retain gains will be difficult for the markets.”
What To Watch
Some main events to watch next week will be ongoing political uncertainty that surrounds Washington, including the looming debt ceiling problem.
Melek said the overall outlook for gold remains good. “This whole nonsense going on in the federal government is increasing the risk of a potential shutdown. Plus, markets are interpreting Yellen’s speech on Friday to be on the dovish side of things. Traders should be prepared for less action from the Fed and not more, which is good for gold in the end of the day.”
The debt ceiling issue became a heated topic this week with U.S. President Donald Trump taking to Twitter Thursday to call the whole thing a “mess”.
According to Jonathan Butler, commodities analyst for Mitsubishi, the debt ceiling hurdle will be one of the central drivers for the yellow metal this fall.
The debt issue will be “a supporting factor for gold in the short-term just as it was in 2011,” Butler said. The risk of an “accidental default” would have “huge repercussions” and be very positive for the safe-haven metal.
“I don't expect we are likely to see a major existential crisis that we saw back in 2008, but the going could get quite tough around the debt ceiling. We know from recent history, notable in 2011, that the macro uncertainty and domestic political uncertainty in the U.S. can make for a strong gold price,” he added.
Trump related anxieties will also continue to dominate the direction of gold prices, said Nichols.
“Most important factor next week will develop on the political front in Washington – the evolution or reduction of support for Trump. Gold prices could very well track his popularity and confidence with the public. Those are things that really stand to change from hour to hour, given Trump’s behavior is unpredictable,” Nichols pointed out.
The North Korea tensions, which have quieted down this week, could light up again and trigger an upward move in gold as well.
“Much will depend on North Korea and U.S. and how the tensions develop. Breaching $1,300 will depend if there is deterioration of the tensions between the two countries or some other source of geopolitical risk,” said Simona Gambarini, analyst at Capital Economics.
Don’t Miss Nonfarm Payrolls Next Week
September is creeping up fast, with the U.S. nonfarm payrolls release scheduled for next Friday, September 1. According to consensus forecasts, market watchers are projecting that at least 184,000 new jobs were added in August, after an increase of 209,000 in July.
“Weaker than anticipated results would weigh on the dollar, lifting gold in turn (and vice versa),” said Sarah Howcroft, economist at BMO Capital Markets.
One of the most interesting data releases to watch next week will be the core PCE Price Index, which is carefully monitored by the Fed, as it is a less volatile measure of inflation because it excludes seasonal food and energy prices, said Melek. The data is set for release on Thursday.
Consumer confidence might also be relevant to gold prices next week and will be published on Tuesday. Other key releases include Wednesday’s Q2 GDP data and ADP Employment report, as well as Friday’s Manufacturing PMI numbers.