Kitco Weekly Outlook: Gold Market Is Stuck And Needs A Catalyst
(Kitco News) - Gold is stuck in a rut and with little economic data out next week, the focus is on a potential rise in geopolitical uncertainty to break the market out of its current channel, according to commodity analysts.
Further strength in the U.S. dollar is putting pressure on gold as it trades near its weekly lows heading into the weekend. On a three-week losing streak, December gold futures last traded at $1.268.10 an ounce, down less than 1% for the week.
Silver is closing the book in relaitvely unchanged territory after seeing a relatively volatile week. December silver futures last traded at $16.815 an ounce, relatively flat from the previous week.
Bill Baruch, president of Blue Line Futures, said that one of the reasons the gold market has been so quiet is because risk aversion sentiment and geopolitical uncertainty have fallen off the radar; however, he added that this could be the time to buy gold and expects to see investors buy on dips.
“You want to buy gold now because when volatility picks up and gold catches a bid, it will be too late. You will end up chasing the market,” he said.
Baruch’s comments come as the CBOE Volatility Index ($VIX), also know at the market fear gauge, remains near record lows. The VIX last traded at 9.64, well below the historical average of 15. Baruch added that any risk event that pushed equity markets lower will ultimately be good for gold and the precious metals market.
Trump Goes To Asia
According to some analysts, the main event for gold next week could be President Donald Trump’s 10-day Asian tour. Previously, heated rhetoric between the White House and North Korea has proven to be a bullish event, pushing gold higher.
However, not all analysts are convinced that Trump will have anything new to say about North Korea, and that could keep gold range bound.
“I think right now we are in a stalemate with North Korea and that doesn’t look to change anytime soon,” said Phillip Streible, senior market analyst at RJO Futures. He added that he is not surprised gold is struggling to hold onto gains in the current environment.
“Why should you be in gold when you can find a lot more excitement in equities? Investors are more interested in Apple (Nasdaq: AAPL)” he said.
Streible said that currently, he likes silver more than gold. He noted that the gold-silver ratio, while still elevated, has fallen from its recent highs.
“The global economy has seen a massive improvement this year and I think investors are more interested in the industrial metals like silver and platinum and palladium,” he said.
Can GOP Push Through Tax Cuts?
Another event that could impact gold next week is further rhetoric on Capitol Hill. Markets will now focus on political discussions surrounding the Republican tax-cut proposals.
Lukman Otunuga, research analyst at FXTM, said that fading optimism over Trump’s tax cut has the potential to push gold back above $1,300; however, he also warned that the market, from a technical outlook, is slightly bearish.
“There have been consistently lower lows and lower highs. $1,280 is pivotal resistance, and a failure of prices to close above that level may trigger a decline back towards $1,267 and $1,260,” he said.
Darin Newsom, senior analyst at DTN, said that gold fundamentally looks boring when compared to equity markets and Bitcoin. This week Bitcoin hit another record as prices pushed above $7,000.
“Why would you be in gold when Bitcoin is going to $10,000?” he said. “I think gold will continue to struggle as everyone focuses on higher equities and Bitcoin.”
What Do The Charts Say?
Newsom said that while gold does have a slightly bearish bias, he would not ready to set up any short positions just yet. He said that the first major support comes at the October lows at $1,262 an ounce. He added that a break of that level would create a target at $1,243 and then $1,215.
Newsom added that there is still enough uncertainty in the marketplace to help gold hold $1,200 an ounce. On the upside, Newsome said that gold would have to break though $1,300 to regain its bullish momentum.
Baruch said that he sees major resistance at $1,280 and that a sustained break could attract buyers to the marketplace.