Gold Is Going ‘Nowhere Fast’ After 4 Million Ounces Sold In Minutes Friday
(Kitco News) - Although gold is finishing the week in positive territory -- ending a three-week losing streak -- the market is mired in a narrow trading channel and needs something big to break out, according to analysts.
Friday’s price action is a perfect example of how the gold market is “going nowhere fast,” some analysts pointed out.
Earlier in the week, gold prices managed to reach a three-week high, which was short-lived as upside momentum weaned on Friday. The market was hit with a major sell order as more than four million ounces were sold within a 15-minute period.
December gold futures last traded at $1,275.70 an ounce, up 0.50% on the week and firmly in the middle of its trading range between the 200-day moving average and the 100-day moving average.
Jim Wyckoff, senior technical analyst at Kitoc.com, described Friday’s price action as a “big sell order from a shorter-term oriented futures trader that caught the market off guard.”
Vince Lanci, editor for marketslant.com and the founder of Echobay Partners, said that while the move appears to be dramatic to gold investors, the reality is that it is probably a small speculative play from a major fund. He added that this type of move could be expected as funds square books ahead of the end of the fiscal year on Nov. 30.
“Controlling $4b notional is small when using leverage via futures margin,” he said in an email to Kitco News. “[Hedge funds] are less price sensitive when it’s time to get out.”
A Trader’s Market
Adam Button, currency analyst at Forexlive.com, described the current price action in gold as a short-term trader’s market with active traders riding $10 to $15 in both directions.
He added that he sees room for gold to move higher in the near-term but doesn’t think the market has enough momentum to push above key resistance around $1,310 an ounce.
Washington Woes Will Help Gold Next Week
While gold remains stuck, there is some hope it continues to push to key resistance levels as the U.S. dollar remains sensitive to tax reform proposals slowly moving through the House and Senate.
Gold managed to hit a three-week high after the U.S. dollar and equity markets slumped on news of a growing divergence between tax legislation proposed by the House and the Senate.
Currency analysts at Brown Brothers Harriman said that the main differences between the two proposed bills are that the Senate’s version eliminates the so-called [state and local tax (SALT)] deductions and delays the corporate tax cut a year until 2019. The Senate version also keeps the estate tax while the House would eliminate it over time, they added.
They added that this issue isn’t likely to be resolved anytime soon and that will continue to put pressure on the U.S. dollar.
Ole Hansen, head of commodity strategy at Saxo Bank, is expecting gold to do well in a weak U.S. dollar environment even if he isn’t expecting to see a breakout of the range. He said that equity market strength will determine gold’s direction next week with the U.S. dollar defining the breadth of the move.
“It is difficult to say what will push gold out of its range but there is enough uncertainty to support prices in a modest uptrend,” he said.
Ultimately, Hansen said that he would need to see significant U.S. dollar weakness and a major rise in geopolitical uncertainty before gold prices break out above $1,300 an ounce.
Key Levels To Watch
Christopher Vecchio, senior currency strategist at DailyFX.com, said that he expects gold’s short-term fortunes to be tied to the ongoing tax reform debate. However, he added that while sentiment in the gold market is improving, a lot of work still needs to be done.
“I don’t like this market at all. I wouldn’t be surprised that in two weeks we will continue to trade between support at $1,263 and resistance at $1,295,” he said.
Hansen said that even if gold has further upside potential in the near-term, prices need to push above the October high of $1,308 to attract new investor interest and capital.
On the downside, he said that he looks for gold to hold support between $1,265 and $1,255, which is a range between the 200-day moving average and a trendline from the December 2015 lows.
The Final Say...
While all eyes will be on Washington next week, the U.S. economic calendar fills up with the highlight being October’s U.S. Consumer Price Index. Core annual inflation has been stuck at the bottom of its range for five months, creating some worries among U.S. central bankers. If price pressures don’t pick up, it could lead to doubts over how aggressive the Federal Reserve will be in raising interest rates in 2018.
Aside from inflation data, markets will receive regional manufacturing data as well as housing construction numbers.