(Kitco News) - It appears that investors are beginning to understand the broader trend in the gold marketplace as prices remain in a fundamental uptrend, prompting them to buy on dips.
Although gold is ending the week down from Wednesday’s record high, it has managed to recover from a sharp selloff, maintaining solid support above $2,700 an ounce. The precious metal is consolidating in relatively neutral territory; December gold futures last traded at $2,747.50 an ounce, up 0.6% from last Friday’s record close.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that gold’s performance this week reflects growing anxiety ahead of the U.S. Presidential Election, which is now less than two weeks away. He noted that, regardless of the election’s outcome, U.S. debt is expected to continue growing.
While gold may have room for a correction next week as critical employment data adds volatility to the marketplace, Hansen noted that corrections so far this year have been shallow.
“The previous four corrections in gold since the June low averaged USD 95, with the latest in October only reaching USD 80,” he stated in a note. “I’m focusing on support at 2,685 and 2,666.”
James Stanley, Senior Strategist at Forex.com, said he expects gold’s shallow pullbacks to remain a consistent theme in the marketplace as the Federal Reserve continues to prioritize equity valuations over fundamental monetary policy.
He added that the resilient economy does not justify the Fed’s aggressive easing. He noted that markets are currently pricing in a 25 basis point cut next month, followed by another 25 basis point cut in December. Additionally, markets are pricing in more than 100 basis points of easing through 2025.
Stanley explained that the Fed has signaled an aggressive easing path even as inflation remains persistently elevated.
“The price action we have seen in gold indicates that the market believes the Fed is making a mistake,” he said. “To break the back of inflation, you need a recession—an economic reset. The Fed hasn’t done that, and that’s why gold is performing so well.”
But it's not just gold. Stanley noted that silver’s rally, with prices closing the week at a fresh 12-year high, reflects broad-based strength in the precious metals sector. Similar to gold, silver is ending the week down from its earlier highs at $35 an ounce; however, December silver futures last traded at $33.78 an ounce, up 1.6% from last week.
Stanley said that looking past silver’s volatility, he expects the precious metal to trend higher as investors seek value to hedge against growing uncertainty in global fiat currencies.
While gold remains in a fundamental uptrend, analysts expect some volatility during a busy week of significant economic events. The highlight of the week will be Friday’s nonfarm payroll data.
Some economists suggest that signs of weakening in the labor market could further support the Fed’s easing cycle.
“We think U.S. labor market data will be heavily affected by the two major hurricanes that hit the U.S. earlier in the autumn, muddling the signal from the October report. We expect a 100,000 increase in nonfarm payrolls—the lowest since 2020—but we still think the underlying trend is towards a gradual loosening of labor market conditions, consistent with a soft landing,” said Jonas Goltermann, Deputy Chief Markets Economist at Capital Economics.
However, the Fed’s dual mandate will take center stage next week as markets also anticipate crucial inflation data with the release of the core Personal Consumption Expenditures Index (PCE), the central bank’s preferred inflation gauge.
Some commodity analysts have suggested that an ideal environment for gold next week would involve weak labor market data coupled with persistently high inflation numbers. This scenario would underscore the risk of a stagflationary environment.
Economic data to watch next week:
Tuesday: JOLTS Job Openings
Wednesday: ADP Employment data, Advance Q3 GDP, US Pending Home Sales, Bank of Japan monetary policy decision.
Thursday: Core PCE, Personal Income and Spending, Weekly jobless claims
Friday: US Nonfarm Payrolls; ISM Manufacturing PMI
