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Gold lacks the juice to break through $2,000 next week, but analysts don't recommend shorting it

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(Kitco News) - Gold’s inability to convincingly break above $2,000 an ounce is creating some cautious sentiment in the marketplace, with some analysts saying that prices might need to consolidate in the near term before the precious metal takes a run at its all-time highs.

While analysts are not looking to short gold in the environment, some have said its price action is disappointing as gold has not benefited from a sharp drop in yields and weakness in the U.S. dollar.

Currently, at $1,999, gold has ended a three-week winning streak as it looks to close the week roughly unchanged from last Friday. However, prices are down nearly 1% from its opening gap at the start of the week.

Commodity analysts have said that gold continues to be driven by global geopolitical factors as waning fear in the marketplace takes its toll on the precious metal’s safe-haven allure. Although Israel’s war with Hamas continues to rage, the conflict remains within Gaza, keeping the ongoing chaos in the Middle East in check.

"The geopolitical crisis that has fueled gold’s rally is becoming exhausted,” said Christopher Vecchio.

Vecchio said that while a geopolitical event can provide the gold market with tradeable momentum, it does nothing to attract long-term investors. He noted that a gold rally based on a specific geopolitical event needs to see constant escalation to maintain its safe-haven bid.

Vecchio said he exited his gold position last week and will remain on the sidelines in the near-term as he expects prices to consolidate.

"The bulk of gold’s big move is done. But I would not want to short gold as the fundamental backdrop of a weaker dollar and lower bond yields are positive for gold,” he said. "I think gold can continue to grind higher, but it will be a frustrating grind for potential traders.”

David Morrison, senior market analyst at Trade Nation, described gold as a market that is in search of a new catalyst.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he is neutral on gold; he also noted that a consolidation around current levels would be healthy. The neutral outlook comes after gold saw a nearly 7% rally in October, its best monthly performance since March.

"Gold has paused after rallying almost 200 dollars last month after profit-taking emerged once again above $2,000 per ounce. Having rallied so hard in a short space of time, the market needs consolidating, but so far, the correction has been relatively shallow, with support appearing at $1,953, ahead of $1,933, the 200-day moving average and 38.2% retracement of the mentioned rally,” said Hansen.

On the downside, Hansen said that gold prices would have to fall back to $1,900 an ounce to put this new uptrend at risk.

With little economic data on the docket next week, analysts have said investors will continue to digest the Federal Reserve’s monetary policy decision.

The Fed's monetary policy is irrelevant and won't stop gold's push above $2,000 - abrdn's Robert Minter

Although the U.S. central bank left interest rates unchanged for the second consecutive time in this tightening cycle, Federal Reserve Chair Jerome Powell maintained his tightening bias.

"Is monetary policy restrictive enough to bring inflation down to 2%? That is what we are asking ourselves," said Powell in his press conference following the monetary policy decision.

"The Fed has left the door open to another rate hike. Even though we are confident that interest rates have already peaked, market participants are nonetheless likely to remain cautious in this respect. Assuming there is no further escalation in the Middle East, the upside potential for the gold price will probably be severely limited,” said Barbara Lambrecht, commodity analyst at Commerzbank.

Markets will get a chance to hear more from Powell as he participates in a panel discussion on "Monetary Challenges in a Global Economy" at a conference in Washington.

The only major economic report to be released next week will be the University of Michigan’s preliminary consumer sentiment survey.

Last month’s revision to the survey surprised markets as one-year consumer inflation expectations rose 4.2%. Powell, during his press conference, dismissed the reading, saying it was an outlier and most consumer surveys show inflation expectations remain "well anchored.”

Next week’s data 
Monday: Reserve Bank of Australia monetary policy decision
Thursday: Weekly U.S. unemployment claims; Powell participates in a panel discussion
Friday: University of Michigan preliminary consumer sentiment

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