(Kitco News) - Gold prices are ending the week at another record high. Looking ahead, with the Federal Reserve just embarking on a new easing cycle, analysts have said that the precious metal has the potential to move higher next week and through the rest of the year.
December gold futures last traded at $2,644.70 an ounce, up more than 1% on the day. Meanwhile, the precious metal is nearly 1.5% from last week’s initial close above $2,600 an ounce. Friday’s rally follows robust volatility after gold's initial post-FOMC gains evaporated.
Gold’s reaction to the Federal Reserve’s 50-basis-point cut and its signal for 200 basis points of easing over the next two years was tempered by comments from Fed Chair Jerome Powell. Powell said the central bank is not in a hurry to ease interest rates and noted that the Fed is now in the process of “recalibrating” its monetary policy.
“If you look at the [Summary of Economic Projections], you will see that it's a process of recalibrating our policy stance away from where we were a year ago when inflation was high and unemployment low, to a place that's more appropriate given where we are now and where we expect to be,” Powell said at the press conference. “There is nothing in the SEP that suggests the committee is in a rush,” he added. “This process evolves over time.”
Jerry Prior, COO and senior portfolio manager of the KFA Mount Lucas Managed Futures Index Strategy ETF (NYSE: KMLM), said that following Powell’s comments, it's unlikely that gold will go parabolic; however, he added that the market should continue to see a steady grind higher.
Julia Khandoshko, CEO of European brokerage firm Mind Money, said she also expects gold prices to consolidate as they slowly trend toward $3,000 an ounce. She added that it is unlikely gold prices will hit that long-term target before the end of the year.
“Most likely, we will see consolidation at current levels and gradual growth. Now is the perfect time to diversify into gold, especially when rates are neither high nor low, making gold more attractive compared to stocks or bonds,” she said in a comment to Kitco News. “Lower rates, an increase in the money supply, and the decentralization of the global economy push gold prices, although it is not worth waiting for sudden breakthroughs. These factors will continue to support the yellow metal, but there are no solid reasons for a hasty purchase.”
Fawad Razaqzada, Market Analyst at StoneX Group, said that although gold remains in a robust technical uptrend, investors should prepare to see some volatility in the near term. However, he added that lower prices could be seen as a long-term buying opportunity.
“The metal is due for some profit-taking in the not-too-distant future, but I maintain a modestly bullish gold outlook for the rest of the year. The metal may be unable to reach the $3,000 milestone this year, but this level is my long-term objective for the yellow metal, due to expectations that major central banks like the Fed will be accelerating rate cuts, while factors such as ongoing geopolitical tensions and central bank gold purchases set a positive stage, too,” said Razaqzada.
Although Powell has tried to lower market expectations, analysts note that the trend has now been established, which is supportive of gold prices.
“The Fed wants to ensure a 'soft landing' for the U.S. economy, with the drop likely to be mirrored by other central banks, bolstering economic conditions and demand for metals,” said Patricia Mohr, an Independent Economist and Commodity Market Specialist.
Although gold remains in an established long-term uptrend, some analysts have said that risks to the downside are growing.
“From a technical point of view, the area of attraction for the price seems to be $2,640, which is the 161.8% level from the initial upward momentum in August 2018 to the peak in August 2020. This was followed by two years of trading in a wide range, with the deepest decline in September-October 2022, which set the stage for a new advance,” said Alex Kuptsikevich, Senior Market Analyst at FxPro. “If gold continues to follow its two-year cycles, the upside momentum could soon be replaced by a sideways or sharp reversal like we saw in 2011. The accumulated overbought conditions in gold do not imply an immediate reversal. On the contrary, the most violent part of the rally, with a massive short squeeze, may still be ahead. However, traders should also be on the lookout for signs of growth exhaustion, which could follow a very sharp correction.”
At the same time, investors will have to continue to pay close attention to economic data. Although the Federal Reserve has outlined its monetary policy path through mid-2026, analysts note that the true direction will be determined by the health of the economy.
Prior noted that gold’s biggest risk right now is a sharp correction in equity markets if disappointing economic data raises fears of a recession. He explained that with equity markets also trading near record highs, there is a risk of a liquidity event that could drag gold prices lower. Investors could be forced to sell their gold holdings to raise capital to support losing equity positions.
Next week’s economic calendar will not be overburdened, with the release of flash preliminary manufacturing data, housing sales data, and consumer confidence. The main economic report markets will be watching is the August core Personal Consumption Expenditures Index (PCE), which is the Federal Reserve’s preferred inflation gauge.
Economic data to watch next week:
Monday: S&P Flash PMI
Tuesday: US Consumer Confidence
Wednesday: US New Home Sales
Thursday: Durable Goods Orders, Final Q3 GDP, weekly jobless claims; US pending home sales
Friday: Core PCE
