(Kitco News) – After delivering one of its strongest weekly performances of the year last week, gold picked up right where it left off, but a midweek stall after fresh all-time highs has market participants more divided on the yellow metal’s near-term direction.
Spot gold kicked off the week trading at $2,722 per ounce, and traders in the Asian and European sessions pushed the yellow metal to the edge of $2,740 by the North American open. But U.S. traders woke up filled with doubt about the precious metal, and they drove the spot price all the way down to $2,716 by 2:45 p.m. EDT.
Gold retraced half of its losses on the day by 9:30 p.m. before resuming a steady uptrend through Tuesday, with all dips being bought right through to 4:30 a.m. on Wednesday when prices set their weekly high of $2,757.80 per ounce.
But as was the case on Monday, North American traders weren't buying it, and after a brief test of support in the $2,739 per ounce range at the open, the spot price collapsed to $2,710 per ounce by 11:00 a.m. Eastern, which ultimately proved to be the weekly low.
While the yellow metal did embark on another steady upward climb, history once again repeated itself, as the North American open on Thursday morning knocked gold from $2742.67 at 9:30 a.m. EDT to $2,725.87 just 45 minutes later.
After that, gold settled into a volatile but relatively narrow $25 trading range for the rest of the week, and by Friday afternoon it was oscillating in the $2,740 per ounce area.
The latest Kitco News Weekly Gold Survey showed a sharp pullback in bullish sentiment among both industry experts and retail traders, with both groups arriving at a nearly identical distribution of expectations for gold’s near-term price performance.
Marc Chandler, managing director at Bannockburn Global Forex, expects consolidation in the near term, and said the risks for gold are now skewed to the downside.
“Gold recorded a potential key reversal in the middle of last week by setting a record high and then selling off and settling below the previous day’s low,” he said. “There was no follow-through in the last two days and a consolidative tone emerged.”
“Central banks buying gold and speculation of the inflationary implications of the policies of the next US administration are the main narrative for the gold bulls,” Chandler added. “It seems counterintuitive that the dollar and US rates and stocks have been rallying alongside gold. A break of $2700 would likely begin squeezing the late longs. My guess is we see $2600 before $2800.”
“I am bearish on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “Nothing came out of the BRICS Summit for precious metals and with precious metals having moved up ahead of that meeting, I think they are due for a correction. Also, there are no central bank meetings this week.”
Cieszynski said he almost went neutral for the week ahead, because in the longer term, “the underlying factors driving the current bull market have not changed like devaluation of paper money and political risk, especially with the US election less than two weeks away now.”
“My bearish stance is one week only, based on the potential for a trading correction,” he said.
“Up,” said James Stanley, senior market strategist at Forex.com. “So far bulls have struggled to gain acceptance over the 2750 level in spot, but I still have no evidence that the run is over yet,” he said. “Buyers put in a couple of strong support responses over the past week, so I’m going to continue to bias with the dominant trend until evidence suggests otherwise.”
“Down,” said Adrian Day, president of Adrian Day Asset Management. “Could the long-expected pullback finally be coming? Perhaps, but we doubt it will be very long or deep. The fundamental reasons driving gold – dollar weaponization for central banks, concern about the economy and safety of banks in China, lower interest rates and stubborn inflation in North America and Europe – remain.”
Darin Newsom, senior market analyst at Barchart.com, thinks the yellow metal is due for a pullback next week.
“I’m going to step in front of this runaway train, at least for one week, and say Dec gold could move lower next week,” he said. “Technically, Dec24 posted a bearish key reversal on its daily chart Wednesday, indicating the short-term trend has turned down. While I still think there could be buying interest tied to potential chaos ahead of the U.S. presidential election, the market might take a quick breather next week.”
In the longer term, however, Newsom believes gold prices are being driven primarily by inflationary and geopolitical risks, in the United States and abroad, and he doesn’t see either of those settling down any time soon.
“It's gold higher, on the idea that we're going to get into Inflationary problems again,” he said. “And from a chaos point of view, [geopolitical conflict] causes increased destabilization. Investors don't like uncertainty, and they start taking the money out of stocks, a very solid investment here over the last four years, because of the uncertainty.”
“Where are they going to look for safe haven?” he asked. “Is it crude oil? No. Is it corn? Probably not. So you don't have king corn, you don't have king crude oil. If you're going to try to hedge against inflation, you're going to be buying into gold for both economic and political reasons.”
This week, nine analysts participated in the Kitco News Gold Survey, and last week’s near-total bullish consensus has shrunk to a narrow majority. Five experts, or 56%, expected to see gold prices rise during the week ahead, while another two, or 22%, predicted a price decline for the precious metal. The remaining two analysts, representing 22%, were neutral on gold’s near term prospects.
Meanwhile, 213 votes were cast in Kitco’s online poll, with a similar majority of Main Street investors holding a bullish bias. 126 retail traders, or 59%, looked for gold prices to rise next week, while 47, or 22%, expected the yellow metal to trade lower. The remaining 40 investors, representing 19% of the total, expect to see prices trend sideways during the week ahead.
The highlight of next week’s economic news calendar will be the Friday morning release of the U.S. employment report for September, with economists predicting 140,000 new jobs, significantly lower than the August print of 254,000.
Markets will also pay attention to Tuesday’s JOLTS Job Openings report, the Wednesday release of ADP Employment data, Advance Q3 GDP, and U.S. Pending Home Sales, with the Bank of Japan’s monetary policy decision in the evening, Thursday’s U.S. Core PCE, Personal Income and Spending for September, along with weekly jobless claims, and ISM Manufacturing PMI on Friday.
“I see gold headed UP,” said Michael Moor, Founder of Moor Analytics. “In a higher timeframe, we are still in an overall bull trend from November 2015, and likely in the later stages, with possible exhaustion above 28634. Part of this is a prediction I made of $151 minimum, $954 (+) maximum from $2,148.4 – of which we have attained $624.2 so far.”
“In a lower timeframe, we saw a bearish correction of over $50 against the move up from 26188 over the past few days, but this is likely complete as the break above 27417 (-4.5 tics per/hour at 9:20am) now warns of continued strength,” Moor said. “Decent failure back below this line should bring in renewed pressure for days.”
Alex Kuptsikevich, Senior Market Analyst at FxPro, sees potential for a near-term correction.
“Gold continued to hit all-time highs in the first half of the week, peaking at $2,758 per troy ounce in the spot market,” he noted. “However, the price retreated by $50 on the same day and remained off the peak as caution grew towards the end of the week.”
“We wouldn’t be surprised to see a pullback to the $2,670-$2,700 range in the upcoming week,” Kuptsikevich said. “This won’t break the strong bullish trend. But a decisive break below will make us cautious in anticipation of a deeper pullback.”
Bob Haberkorn, senior commodities broker at RJO Futures, says they’re still very bullish on the yellow metal.
“These dips are bought up so fast, and we're heading into the election,” he said. “There's more flight to safety right now, and there's going to be more flight to safety next week.”
Haberkorn said that with markets now pricing in a Trump win in the upcoming election, a Republican White House should also be inflationary and gold-supportive in the near term.
“Looking forward here, the fight that you're going to see, to cut government spending, is going to be significant, while Trump is looking to cut taxes as well,” he said. “Will they be able to cut government programs, government taxes, something similar to what you're seeing in Argentina, which is needed in the United States, drastically? There's some bitter pills that people are going to have to swallow to get spending under control here in the United States.”
“I think the tax cuts that they're talking about will go through, the ones that expire next year that were pushed forward,” Haberkorn said, “I think they'll make some changes, and if not, maybe make some more significant cuts. But the key is, what about government spending? How are they going to get that under control?”
Haberkorn believes the United States is at a pivotal point right now. “You could see it in the U.S. treasuries, where treasury yields are going up in spite of the Fed cutting rates,” he said. “What's that telling you? It's telling you that bond purchasers don't want to buy treasuries. They want higher guarantees, higher rates to purchase those treasuries. Given what's going on in the treasury market, I think right now gold's well-positioned, and I don't think in the short term, meaning in the next year, you're going to see much change from that standpoint.”
Haberkorn said he’s keeping a close eye on bond yields to determine gold’s next moves. “We'll see how those shape out here next week, but I think that will also be a key driver right now, with those ticking up.”
And Kitco Senior Analyst Jim Wyckoff said technical and fundamental factors remain supportive of the gold price. “Steady-higher as charts remain bullish and safe-haven demand keeping a floor under prices,” he said.
At the time of writing, spot gold last traded at $2,743.72 per ounce for a gain of 0.28% on the day and 0.75% on the week.
