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Gold needs weak economic data as a catalyst to push prices higher next week

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(Kitco News) - The gold market maintains its resilience in the face of significant headwinds; however, precious metals are in desperate need of a catalyst to push prices out of their current downtrend, according to some analysts.

After four weeks of losses, gold is heading into the weekend with a modest gain. December gold futures last traded at $1,9410.90 an ounce, up 1.27%.  Despite the gains, analysts note that the gold market is generally stuck in a “wait-and-see” mode and next week’s economic data could create some critical volatility. 

U.S. economic data continues to play an essential role in the sentiment in the gold market. The Federal Reserve has said that it will maintain interest rates higher for longer as healthy economic activity continues to support the tight labor market.

Federal Reserve Chairman Powell reiterated that stance Friday in his prepared remarks during the central bank's annual retreat at Jackson Hole. Although Powell provided little new information, he reiterated the central bank’s stance to bring inflation down to its 2% target even as it remains data-dependent.

“We are navigating by the stars under cloudy skies. In such circumstances, risk-management considerations are critical. At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks,” Powell said in his remarks.

Phillip Streible, chief market strategist at Blue Line Futures, said weak data with a focus on Friday’s nonfarm payrolls report could breathe some new life into the precious metal, providing an early signal that the central bank’s tightening cycle has ended; however, he added that the market has some significant hurdles to clear.

“Even if the market does turn around, investors might still hesitate to jump back in. Investors are going to take a more conservative stance on gold and silver in the near term. Prices need to get over $1,971 just to turn neutral, but prices are not even able to break above resistance at $1,951.”

While some analysts have described Powell’s statement as “dull,” they point out that the status quo remains a complex environment for gold.

Craig Erlam, senior market analyst at OANDA, said that gold’s upside momentum could be limited in the near-term.

“Comments from Powell have not put traders' minds at ease and the traders are increasingly being forced to come to terms with rates remaining higher for even longer, strengthening the dollar and weighing on gold again today. It remains above $1,900 currently, but only just. The Fed is clearly far from convinced that the job is done,” he said in a note.

While gold’s upside appears to be limited in the near term, so could its downside. Christopher Vecchio, head of futures and forex at, said that with bond yields holding near a 15-year high, gold prices should be a lot lower.

He said that he suspects growing economic uncertainty in China and the threat of stagflation in Europe is helping to support safe-haven demand in gold.

“The Chinese government is going to have to throw a lot of good money at bad investments. This uncertainty is helping to raise the floor price for gold and silver,” he said. “I think the worst days for gold and silver are over. The market is not ready to run higher, but I expect we could trend around $1,900 for a while,” he said.

Some analysts point out that silver has already experienced a modest short squeeze as prices look to end the week with a 2.4% gain.

Vecchio added that any signs of economic weakness could convince the U.S. central bank that it doesn’t have to raise interest rates any further.

While the main risk event will be Friday with the release of the U.S. August employment report, several high-profile reports will be on the docket next week.

Next week's data:

Tuesday: U.S. Consumer Confidence, JOLTS job openings
ADP private payrolls, Preliminary Q1 GDP, pending home sales
Core PCE, personal income and spending, weekly jobless claims
Nonfarm payrolls report, ISM manufacturing PMI survey

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