Make Kitco Your Homepage

Just when you think it is safe to get back into the water...

Kitco News

Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!

(Kitco News) - Just when gold bulls thought it was safe to step back into the market, the bears have once again charged forward, asserting their dominance over price direction.

Sentiment heading into the weekend has significantly changed since mid-week. Optimism was building in the gold market as it managed to hold long-term support after the Federal Reserve raised interest rates by 75 basis points and signaled a terminal rate for the current tightening cycle above 4.5%.

Analysts were saying that gold was once again looking attractive as the Federal Reserve, with its aggressive monetary policy action, threatened to push the U.S. economy to the brink of a recession. Powell himself reiterated his Jackson Hole warning that the central bank will inflict some pain on consumers as it slows the economy to bring down inflation.

At the same time, many analysts have noted that gold has been so beaten up that it is due for a relief rally. If you want to know how beat up gold is, just look at the front page of the Wall Street Journal from Sept. 20. The headline declared: "Gold loses Status as Haven."

Many see headlines like these as a sign of a bottom as it is difficult for sentiment to get much worse. However, a lot can change in the current market environment in 24 hours.

The optimism mid-week has evaporated as gold is looking to end the week at a new two-year low, unable to withstand surging momentum in the U.S. dollar, which is trading at a fresh 20-year high.

According to analysts, the latest surge in momentum in King Dollar is due to the collapse of the British pound. The pound is seeing its biggest drop since 2016, when citizens surprisingly voted to exit the European Union. The pound is ending the week down 4.7%.

It's not just gold; it is a sea of red across the commodity complex as the U.S. dollar rules financial markets.
Many analysts have noted that below $1,650 an ounce, there is not much technical support for the precious metal.

This could be the start of a capitulation move that takes prices all the way down to $1,550 an ounce.

But it's not all doom and gloom in the marketplace. Even in Friday's massive selloff, the precious metal is outperforming other assets. Gold prices are down less than 2% this week, while oil prices are down more than 7%.

Gold is so unloved it is becoming immune to Fed's oversized rate hikes - MKS' Shiels

Gold is also fairing a lot better than equity markets, with the S&P 500 falling 5% this week. The Dow Jones Industrial Average has dropped below 30,000 and is ending the week with a 4.5% loss.

In a recent interview Tavi Costa, Portfolio Manager at Crescat Capital, told Kitco News' David Lin that he expects to see further weaknesses in equity markets.

"In my view, we're going to see a bigger decline in equity markets," Costa claimed. "I don't think this is an environment where you want to be buying the dip."

George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that he expects weaker equity markets to boost safe-haven demand for gold. He added that market uncertainty should help keep gold prices from significantly selling off.

"We face a lot of macroeconomic and geopolitical uncertainty and in this environment, I certainly would not be selling my safe-haven assets. At these prices, I would be looking to add to my core position," Milling-Stanley said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.