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Global Growth Concerns To Drive Gold Prices Near-Term – Analysts

Kitco News

(Kitco News) - Optimism in the gold market is picking up as prices bounced off critical support to end the week in positive territory.

However, some analysts are warning investors to not expect too much excitement in the near-term as markets will see a shortened trading week as American investors celebrate Thanksgiving. December gold futures last traded at $1,223.10 an ounce, up 1% from the previous week.

According to analysts, the critical resistance level to watch next week will be the October high at $1,246. Greg Harmon, founder of Dragonfly Capital, said that a push above that level would represent a strong technical move in the marketplace, signaling a trend reversal.

Harmon added that while he sees potential for the precious metal in the near-term, it is difficult to get extremely bullish as it remains in the sideways pattern.

Phillip Streible, senior market analyst at RJO Futures said that he is also watching the $1,240 level next week. “Until we get above there, the other shoe can still drop and prices could easily fall back below $1,200 an ounce.”

Global Growth Concerns Growing

According to analysts, gold is getting a boost this week as concerns start to mount about the health of the global economy. The growing threat of weaker global growth is causing some market participants to pare back their equity investments in search for safe-haven assets like gold.

The shift in expectations came after Federal Reserve Chairman Jerome Powell said at an event at the Federal Reserve of Dallas that although the U.S. economy remains healthy, he sees potential risks ahead.

Weaker growth expectations are also impacting the U.S. dollar and interest rate expectations. Although a December rate hike is seen as a sure thing, markets are lowering their expectations of rate hikes in 2019.

Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that an end-game to the Federal Reserve’s tightening cycle is what gold needs to rally as the precious metal remains in a compressed trading range.

“Gold is ripe to rally,” he said. “[Gold is seeing] the narrowest 24-month Bollinger bands for the longest period in 16 years [which] indicate the metal's upside. For gold to decline, it would likely need the dollar to remain above multiyear highs, plus a decline in equity-market volatility.”

Ryan McKay, commodity strategist at TD Securities, said near-term sentiment on global growth could sour, boosting gold prices, but he added that he thinks markets are being a little too pessimistic.

“We expect that long-term growth fundamentals will remain in place,” he said. “We don’t see growth threats materializing until the second half of 2019, which should provide some support for gold and other precious metals.”

Economists at Nomura also don’t see a significant risk for global growth.

“We remain sanguine that any global slowdown in coming months will not be that acute, but downside risks to our base case have nevertheless increased in recent weeks,” the economists said in a recent report.

Fawad Razaqzada, technical analyst at City Index, said that gold investors should pay close attention to U.S. economic data next week as that could determine the precious metal’s next move.

“If we see further evidence of slowing in the U.S. economy then I think we will see gold push higher,” he said. “It looks like the market wants to test the October highs again.”

U.S. Housing Market In The Spot Light Next Week

Although investors will probably be paying more attention to their turkey dinners and Black Friday deals, U.S. housing data will be released next week, with analysts saying that the reports could potentially  add some volatility to an already skittish marketplace.

The U.S. housing market has been in a downtrend for the last seven months, seeing lower construction and home sales this year. According to economists, rising home prices and higher mortgage rates due to rising interest rates are pushing many first-time home buyers out of the market.

Brexit, Still A Concern

Outside of the U.S., analysts have said that escalating Brexit concerns, which are dragging down European equity markets, should also help support gold prices in the near-term.

Earlier this week U.K. Prime Minister Theresa May presented her Cabinet with a draft Brexit agreement, which was received with some harsh criticism as two senior members of the U.K. government resigned. May also faces growing threats to her leadership as Members of Parliament call for a confidence vote.

Economists at Nomura said that this uncertainty will remain a headwind for the nation’s economy.

“There is another month to go before the deal gets through the hurdles of an EU summit and more crucially the U.K. parliament. That is likely to mean another decline in business investment in the final quarter of this year and possibly even early next year. That would make it a full year or more of declining business investment, the first time this would have happened since the global financial crisis,” economists said.

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