(Kitco News) – Gold faced a number of headwinds this week, and received no supportive news or data, but the yellow metal held its own and showed its resilience with a steady climb to the finish.
Spot gold kicked off the week trading close to $2,652 per ounce before falling to support at $2,640 overnight Sunday. By 7:30 a.m. Eastern on Monday morning, spot gold was trading just below $2,660 per ounce, but that proved to be the high point for the next few days, as the yellow metal returned to retest the $2,640 support level multiple times on Monday, before finally breaking through just after 10:00 p.m.
Tuesday morning saw spot gold climb from a low of $2,632 per $2,650, but what followed was the week's most dramatic decline, with prices falling from $2,652 per ounce at 8:00 a.m. Eastern all the way to $2,609 two hours later.
After setting a fresh weekly low just above $2,609 shortly before 1:00 p.m., gold settled into a relatively narrow trading range between $2,606 and $2,620 as markets awaited the week's first significant release, the FOMC minutes from the last meeting at 2:00 p.m. on Wednesday. While the minutes showed some fed voters had cold feet about the 50 basis point cut, gold took their reticence in stride, and began a slow but steady grind higher.
Thursday morning brought news that consumer inflation ran a little hotter than expected in September, which added volatility to markets in the near term, but propelled gold marginally higher overall. By midnight Thursday evening, gold's steady climb saw it top out just above $2,645 per ounce before it pulled back to wait for the week’s final key data release, September's PPI inflation report.
Once the BLS release showed that producer prices remained in line with expectations last month, gold finally reclaimed the territory it had held on Sunday evening, and by 12:30 p.m. Eastern the yellow metal managed to set a fresh weekly high of $2,661.47 per ounce, after which it traded within $5 of that level for the duration of the session.
The latest Kitco News Weekly Gold Survey showed only a minority of industry experts expect price gains next week, while the majority of retail investors remained optimistic but ticked lower for the third week in a row.
“Gold held the top of the range of the pullback I expected, finding support near $2600,” said Marc Chandler, managing director at Bannockburn Global Forex. “It bounced to $2650 after US PPI, but I think that is it and we could see a retest on the $2600 and maybe the $2580 area.”
“Middle East tensions are supportive but higher interest rates and firm dollar may weigh on the yellow metal,” he added.
“Up,” said Darin Newsom, senior market analyst at Barchart.com. “Another week gone, meaning the window has closed ever so slightly for those around the world looking to create chaos, with the end goal being economic and political change. Given this, investment traders will likely continue to move into gold as a safe-haven market.”
“I am neutral on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “After a big run, Gold has settled into a $2600-$2700 trading range. With full and partial holidays on Monday, no central bank meetings and no currency moving data on the schedule, the coming week looks like it could be quiet for Gold.”
“Up,” said James Stanley, senior market strategist at Forex.com. “Over the past few weeks, bulls have had every excuse to take profits following another extension in the move, including a strong breakout in the US Dollar and more recently, strong NFP and CPI reports. It’s only been able to provide mild pullbacks though and that says to me that gold bulls aren’t finished yet. I now have it testing the resistance side of a bull flag and that keeps the door open for fresh ATHs.”
Adam Button, head of currency strategy at Forexlive.com, said that he’s neutral on gold for the coming week, but it’s shown impressive resilience in shaking off broad U.S. dollar strength and rising Treasury yields.
“The gold market didn't get any good news this week, not that I can see,” he said. “The news flow was dollar-positive and bonds sold off, yet gold held in there. It started out weak early in the week, banging around. Now gold's finishing near flat on the week. That's a win in a tough week for news.”
“I’m skeptical that can continue indefinitely but that’s a good sign for now.”
Button said that while CPI came in a little hotter than expected, he doesn’t think too many people are betting on a real resurgence in inflation. “I think the better case for gold was a recession trade and the Fed cutting to one percent or something,” he said. “I took CPI as bad news for gold, and the market did initially, because the dollar is just strengthening. Stocks are at all-time highs, and certainly that's a competing factor. I was very focused on China stimulus, and the case was that you're going to get competition for Chinese investors into equities, and that was the case.”
Button noted that China’s central bank also stopped buying gold months ago, and they may sit on their hands longer than many expect. “They stopped buying in May and said wait,” he added. “Maybe they wait three years.”
He pointed out that gold is coming into a seasonal tailwind now, and that may be part of what’s helping to prop up prices. “It’s just impressive, the last two days,” he said. “I was seeing it weakening this week and I thought, ‘Yeah, that makes sense. I don't like it, but it makes sense.’ And now it’s come back pretty strong here, 50, 60 bucks in a couple of days. I take that to be a good sign.”
“Maybe lighten up if you're long,” he suggested. “That's why I put ‘neutral’ in the survey, because the fundamentals aren't exactly aligned to my way of thinking for gold.”
This week, 15 analysts participated in the Kitco News Gold Survey, and once again, only a minority of Wall Street sees price gains in gold’s near-term future. Seven experts, or 47%, expected to see prices rise during the week ahead, while another two, or 13%, predicted a price decline for the precious metal. The remaining six analysts, representing 40%, are neutral on gold’s near-term prospects.
Meanwhile, 157 votes were cast in Kitco’s online poll, with an ever-shrinking majority of Main Street investors predicting gold will post further gains. 88 retail traders, or 56%, looked for gold prices to rise next week, while 43, or 27%, expected the yellow metal to trade lower. The remaining 26, representing 17% of the total, saw prices trending sideways during the week ahead.
The economic calendar is relatively light next week, but markets will still be watching U.S. retail sales data on Thursday to see if consumer spending continues to remain resilient. The other major news event is the European Central Bank’s monetary policy decision earlier on Thursday.
Traders will also pay attention to the Empire State manufacturing survey on Tuesday, U.S. weekly jobless claims and the Philly Fed manufacturing survey on Thursday, and the Friday morning release of U.S. housing starts and building permits.
Mark Leibovit, publisher of the VR Metals/Resource Letter, said he sees the possibility of higher prices. “Giving the upside the benefit of the doubt having seen a little dip this past week,” he said.
Daniel Pavilonis, senior commodities broker at RJO Futures, believes gold prices still have upward momentum.
“The thing about gold is it still looks like it's trying to track up to $3,000,” he said. “If you look at the events that are all lined up here, we can see stuff escalating with Iran and Israel, and if that turns into something more significant, I don't think anybody wants that, but if that's the case, then we can see gold move higher. I think we can see gold move higher just off the headlines of a retaliatory strike from Israel, but as the dust settles and no major targets were hit, then I think maybe gold backs off a little bit.”
“We also have the elections coming up,” he continued. “There's just so much uncertainty with the elections and the possibility of not being able to call them right away, and then also the impacted areas from the last two hurricanes, there's going to be some issues there. And then we still have the Ukraine-Russia war, then de-dollarization, more countries adding to BRICS. I think this is a perfect scenario for gold.”
Pavilonis said that on top of all the geopolitical drivers, price pressures still aren’t fully under control.
“We have still inflationary data coming out,” he said. “The Fed has to cut rates because even though inflation, prices, consumer spending is still strong, there are some weaknesses in the markets that they're cutting rates for. The housing market for instance is almost at a gridlock which can have another domino effect with construction spending slowing, job losses and so forth, which could potentially push us into a recession.”
“I don't see any reason why gold would go down,” he added. “It's how quick can it move, that's the question.”
Pavilonis reiterated that there’s so much fear and uncertainty about so many things right now, he believes gold is getting support from a general worry bid. “Nothing has seemed right, since even before COVID, there's this feeling that there's something bad on the horizon,” he said. “That could also be a reason why people are buying gold. You hear that Costco sells out of all their gold bars, now they're selling out of platinum bars. Silver, I think, is going to take off next.”
Pavilonis also said he finds it odd that the margins on exchanges haven’t gone up in line with gold’s price increase.
“The volatility is not extreme in gold, but whenever we've seen the metals markets move much higher, the margins went up significantly,” he said. “Now, the exchanges don't really care how high the price goes, they're not raising the margins. ln 2010 when silver explodes up to $50 the margin goes up to $50,000 a contract or something, it was insane. We saw that with cocoa, we see that with other markets, but we don't necessarily see that with gold. Is that because the exchange members are all long gold anyway? So maybe that opens the door for upside potential there, too.”
“My prediction for gold is, I think we're going to see another up week.”
Analysts at CPM Group have issued a sell recommendation for the near term, though they still see potential for gold prices to test the upper edge of their recent range.
“There is undoubtedly a lot of positive investor sentiment toward gold at this time and this is expected to help keep gold prices at elevated levels,” they said. “Despite the positive sentiment gold is not insulated from pullbacks. Prices could move in a range, at elevated levels, over the next several days. Prices could test $2,675 or $2,680 on the upside but are then expected to retest $2,625, a low seen earlier this week.”
Michael Moor, Founder of Moor Analytics, said the technical picture is now mixed in the near term.
“The solid trade above 21475-84 projects this upward $151 minimum, $954 (+) maximum. We have attained $560.3,” he said. “The trade above 26544 (-2 tics per/hour) now warns of decent strength; but decent failure back below where this comes in at 26538 (-2 tics per/hour starting at 12:20pm EST) will negate this. Decent trade below 26308 (+2 tics per/hour starting at 12:20pm) will project this downward $45 minimum, $125 (+) maximum; but if we break below here decently and back above decently, look for decent short covering.”
And Kitco Senior Analyst Jim Wyckoff says gold prices should continue to push higher next week. “Steady-higher as technicals remain bullish and geopolitical tensions remain elevated, to keep a safe-haven bid in the gold market,” he said.
At the time of writing, spot gold last traded at $2,657.07 per ounce for a gain of 1.03% on the day and 0.21% on the week.
