(Kitco News) – After months of speculation on when the Federal Reserve would finally kick off its easing cycle, followed by weeks of market vacillation between 25 and 50 basis points, the big day finally arrived, and it did not disappoint the metals market.
Spot gold kicked off the week already trading near the all-time record highs set toward the end of last week, and established strong near-term support in the $2,570 range through Monday, with resistance around $2,588 per ounce. Tuesday morning brought a dip to the then-weekly low of $2,563 per ounce, but by late afternoon the yellow metal was trading comfortably above $2575 once again.
From there, bullion prices entered a tight holding pattern as they awaited the Federal Reserve’s final verdict: Would it be 25 basis points, seen as the conservative and more realistic outcome, or a bold 50 basis point cut?
When 2:00 p.m. EDT finally arrived, markets were thrilled to see that the Fed had opted to go big, and spot gold immediately shot up to a new all-time high above $2,594 per ounce.
As is so often the case around these highly leveraged economic news events, the sell-off was just as pronounced, with gold declining to the weekly low of $2,549 about 20 minutes after the conclusion of Fed chair Jerome Powell's press conference. But Wednesday evening saw the yellow metal begin its final ascent of the week, as it rose once again above $2,590, and after a brief dip to $2,573, it finally took out the milestone $2,600 level just after 2:30 a.m. eastern on Friday morning.
After climbing as high as $2,617 per ounce during the European session, the yellow metal once again dipped down to test support at $2,605 right at the North American market open. But it was then off to the races once again, with spot gold setting a fresh all-time high of $2,625.79 shortly after 12:30 p.m. Eastern, and at the time of writing, spot gold continues to hold above $2,620 per ounce.
The latest Kitco News Weekly Gold Survey showed retail investors overwhelmingly optimistic about gold’s potential price gains next week, while industry experts were evenly divided between further strength and near-term consolidation.
“Up,” said Adrian Day, president of Adrian Day Asset Management. “For now, gold seems unstoppable, though there will be a pause or pullback at some point, obviously. Though central banks and Chinese investors have dominated gold buying for the past two years, for their own reasons, now Western investors are beginning to return to the market as macro conditions turn positive, with lower interest rates and an economy that is clearly slowing.”
Marc Chandler, Managing Director at Bannockburn Global Forex, sees the yellow metal trending sideways during the week ahead. “Gold reached our $2600 target in the middle of the week after the Federal Reserve delivered a 50 bp rate cut,” he said. “It pulled back, found support near $2550 and saw new highs ahead of the weekend.”
“Next week should be quieter, and this could mean some liquidation by momentum traders, especially if US rates and the dollar correct higher,” he added. “With the gold above the upper Bollinger Band ($2604) bulls may be patient, awaiting more attractive entry levels.”
“I remain bullish on gold for next week,” said Colin Cieszynski, Chief Market Strategist at SIA Wealth Management. “Having broken out to new all-time highs, it looks like a new upleg may have started technically.”
Mark Leibovit, publisher of the VR Metals/Resource Letter, expects gold prices to decline next week. “Down, as it was a trading top this week based on cycles,” he said.
Sean Lusk, co-director of commercial hedging at Walsh Trading, was unpacking the implications of the Fed’s latest data dump. He said the 50-basis point cut made sense to him, but it’s the Fed’s latest projections that came as a shock.
“I'm surprised at all the rate cuts forthcoming after the 50 that they're projecting on the dot plot,” he said. “In my view, this is going to renew inflation risks at some point, but they must be thinking the job market has just got awful,” he said. “Why in the hell are we going back to two and three quarters and three percent by mid-2026? It's just nuts.”
“They've turned their attention to maintaining employment, obviously, but at the same time, doesn't that inflate the risk of renewed inflation down the road?” he questioned. “I don't understand any of this. 25 basis points is just a pipe dream, it doesn't do much, so I understand the 50 at first. Why don't you just leave it right there and see if unemployment is still subdued?”
Lusk said that while many might disagree, he doesn’t think the Fed cut rates for political reasons heading into the November election. “I take them at their word,” he said. “Obviously there's some recessionary fears and that's why they're doing this. I'm really surprised to see, these longer term indexes turn up like we did yesterday. Longer term, and we'll see what happens here, we need to see private sector growth.”
“I don't think it paints a rosy picture for the economy in the job market, if you're going to be this aggressive further on out and bring rates right back down to where they were pre-pandemic, or near there,” he added.
As for what this means for gold prices, Lusk sees further gains, at least in the short term.
“It looks like we're going to the 3 percent level, which is $2,685,” he said. “We're not too far away from it, we're at $2,648 in [the December contract] right now… It's just insane, I thought they would have paused a little bit. Usually, once we get past Labor Day, you see a little weakness, physical demand backs off, but this rally is unrelenting, because you’ve got all these other countries increasing their reserves. Now they're cutting rates, so that's going to be even more attractive.”
“But nothing goes up forever, and we know that we’re due for a nice healthy correction here,” he warned. “What would deter it is if you had a big sell-off of the stock market, because then, you’ve got some trepidation. You’d have gold lose its allure because if stocks are getting whacked, nobody's lining up, at least near-term here, to buy it at $2,600 an ounce.”
“The market's going to reach an equilibrium where it's just going to go, ‘You know what? I'm not paying it.’”
This week, 19 analysts participated in the Kitco News Gold Survey, with the overwhelming majority seeing either a sideways churn for prices or the potential for even greater gains. Nine experts, or 47%, expect to see gold prices rise during the week ahead, while eight analysts, representing 42%, predicted sideways price action for the precious metal. Only two experts, or 11%, believe gold will trade lower next week.
Meanwhile, 189 votes were cast in Kitco’s online poll, with most Main Street investors returning to their optimistic outlook. 129 retail traders, or 68%, looked for gold prices to rise next week, while 29, or 15%, expected the yellow metal to trade lower. The remaining 31 respondents, representing 17%, saw prices consolidating during the week ahead.
While not as momentous as this past week, next week’s economic calendar still features a range of important data releases, including the S&P Flash PMI on Monday, U.S. Consumer Confidence on Tuesday, the Wednesday publication of U.S. New Home Sales, and Thursday’s Durable Goods report, Final Q3 GDP, weekly jobless claims, and U.S. pending home sales.
But the main event comes at the end with the release of the August core Personal Consumption Expenditures Index (PCE), the Federal Reserve’s preferred inflation gauge, on Friday morning.
“I’m going to remain bullish,” said James Stanley, senior market strategist at Forex.com. “While this is a tough move to chase I think it’s even tougher to fade, and buyers have remained very active on pullbacks. I have no reason to think that’s yet changed so will retain a bullish stance into next week on gold.”
StoneX Bullion market analyst Fawad Razaqzada is bearish on gold’s prospects for the coming week but remains bullish long-term.
“Technically, gold remains in a strong uptrend so it is anyone’s guess how far the metal could rise,” he said. “But do watch out for profit-taking and short-term reversal signals given the fact that momentum indicators like the RSI are pointing to overbought conditions.”
Adam Button, head of currency strategy at Forexlive.com, said he was happy to see the FOMC do the right thing.
“I wasn't surprised,” he said. “I was pleased, because it was one of those events where all the economists were saying ‘They should do 50, but I think they will do 25.’ I read that article about 20 times in the last month.”
“I was thinking they would do 50 because Powell's not the kind of guy to wait around, especially on the dovish side,” he said. “And he delivered.”
Button said the market actually put the Fed in a bit of an awkward position with its string of strong performances leading up to the announcement. “I think it was a tough one for the Fed, because the market rallied like seven days straight going into it,” he said. “You're thinking this is a disappointment, for sure. And we just blasted through yesterday.”
He said that Fed governor Christopher Waller’s comments on Friday morning were also a big deal. “You want to see what their level of commitment is to getting to neutral,” he said. “And Waller, a bit of a hawk, comes out today and he's talking about undershooting on the Fed target has him worried, and indicating they could do more again if things don't go well. If the data is good, they'll cut 25, if it's a little soft, they're going to cut 50 again.”
“Now, it's just a pure Fed put,” he added. “If anything goes wrong in the U.S. economy, the Fed's going to cut harder. And that's as clear of a Fed put is you'll ever see.”
Button said that dollar weakness is the main driver for gold right now. “If the dollar gets weak on a pretty strong global economy, say China comes to life, we're at the start of a global growth cycle, and you get some dollar weakening, gold starts to look pretty good.”
On the other hand, Button said that if it looks like a recession and the Fed is cutting fast, then gold gets a safe-haven bid.
“There's a narrow unsweet spot there where gold could struggle, where it's not really a recession, but global growth still stinks,” he said. “That's probably the worst-case scenario for gold.”
Button said even though he’s trying to look for weakness in gold, he sees only strength right now.
“If I look back over the last year, gold has passed every test,” he said. “Even in the last six months, China stopped buying, the PBoC officially stopped buying, and we quickly bounced back from that. The dollar is a bit strong, it held up, held up when equities bounced around, held up from the seasonals. Gold has passed every test, and with flying colors.”
“It's all blue skies, technically,” he said. “$3,000. I guess you could be a little more cautious today, and say $2,750, but it's not like someone's going to stomp on that. It's a momentum thing. And I just sense the momentum is improving, if anything, and I think the market noticed that gold was hitting highs. Even on Waller today, gold was the first thing to go.”
“And then the dips are so shallow,” Button added. “I really can't find a knock on gold right now. For the range, you could say $2,500, and something could certainly happen and knock you back down to that, to $3,000. At some point you need to consolidate. But it seems like a nice place to be ahead of the election.”
Alex Kuptsikevich, Senior Market Analyst at FxPro, said that gold has converted the last of the skeptics this week.
“Gold started the week with new highs and ended the week with a 1.3% gain, digesting a 2% dip on profit-taking following the Fed's rate decision,” he said. “The loosening of monetary policy by more than economists had expected and forecasts of further active cuts brought back appetite for risk assets. However, the turnaround in US 10-year government bond yields has set a more cautious tone.
Kuptsikevich said that the decline in government bond yields increases interest in gold. “This inverse correlation worked well last year but has started to fail this year and broke down this week when gold prices and yields started to rise simultaneously,” he said. “If this is not a sign of a flight from dollar assets, it may be a sign that gold is nearing a peak.”
He added that the forced liquidation of short positions could push gold prices further into historical highs.
“From a technical point of view, the area of attraction for the price seems to be $2640, which is the 161.8% level from the initial upward momentum in August 2018 to the peak in August 2020,” Kuptsikevich said. “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. 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.”
Major turning points in gold over the past six years have come at the touch of the 200-week simple moving average. It is now almost 40% or over $1100 behind the price. In absolute terms, this is the largest gap since 2011 and in relative terms since 2020. This difference makes the potential for a correction that could take the price to $2000 within a year or two enormous.
Kuptsikevich cautioned that the current overbought conditions do not indicate an immediate reversal. “On the contrary, the most violent part of the rally, with a massive short squeeze, may still be ahead,” he said. “However, traders should also be on the lookout for signs of growth exhaustion, which could follow a very sharp correction.”
Analysts at CPM Group are recommending that investors stand aside in the near term.
“The Fed delivered this 50-bps cut,” they said, noting that it lowered “its median forecast for interest rates going forward as well as its expectations of future economic growth and inflation. The Fed also raised its projections for unemployment. All of this together suggests that the Fed is concerned about future economic growth, but with its 50 bps cut and its lowered interest rate projections was attempting to show the market that it is ready to act aggressively if needed.”
This has mixed implications for gold,” the analysts said. “On the one hand, projections of lower interest rates are supportive of higher gold prices at the same time the lower interest rate environment could reduce the possibility of significantly weaker economic conditions and thereby higher gold prices.”
“This is not to say gold prices will weaken, but that gold prices may face challenges rising strongly from present levels in the absence of weaker economic data,” they concluded. “This coupled with ongoing political risk should create a volatile environment for gold prices in the coming weeks.”
Michael Moor, Founder of Moor Analytics, noted that gold has achieved just over half of his higher time frame priojections for gains.
“The solid trade above 21475-84 projects this upward $151 minimum, $954 (+) maximum. We have attained $489.5,” he said. “Lower time frame: The trade back above 25375 (-.6 tic per/hour) warned of renewed strength—we have seen $100.4. The trade above 25454 (-.5 of a tic per/hour) projects this upward $17 minimum, $55 (+) maximum—we have attained $92.5; but if we break back below decently, look for decent pressure. Decent trade above 26326 (+2.5 tics per/hour starting at 6:00am) will warn of continued higher trade. Decent trade below 26029 (-6 tics per/hour starting at 5:00am) should bring in decent pressure. Decent trade below 25897 (+3.3 tics per/hour) will project this down $47 (+).”
And Kitco Senior Analyst Jim Wyckoff sees a period of consolidation for gold prices in the near term. “Choppy and sideways, as gold market is due for some normal ‘backing and filling’ in the existing price uptrend,” he said. “Bulls still in firm control, technically.”
At the time of writing, spot gold last traded at $2,622.11 per ounce for a gain of 1.36% on the day and 1.68% on the week.
