(Kitco News) - After holding support above $2,600 at the start of the month, gold is once again seeing solid selling pressure as prices were unable to hold gains at all-time record highs above $2,800 an ounce. Investors are now once again wondering if this is the long-awaited correction or just another shallow dip that will be quickly bought.
Some analysts note that better-than-expected economic data this week could put pressure on gold in the near term. The real test comes Friday with the release of October’s nonfarm payrolls data.
Ahead of the official government numbers, private-sector payroll data showed robust job gains last month. While the ADP payrolls report has an inconsistent history of tracking government numbers, some analysts have said there are upside risks to October’s labor market.
“These figures could shift the market sentiment around gold. Strong data would reduce the likelihood of aggressive Fed rate cuts, which could prompt a sell-off in Treasuries, push yields higher, and boost dollar demand,” said Ricardo Evangelista, Senior Analyst at ActivTrades.
Evangelista's comments come as the yield on 10-year notes continues to trade at a three-month high above 4%.
It’s not just economic data that is weighing on the gold market. Alex Kuptsikevich, Chief Market Analyst at FxPro, said in a note Thursday that momentum indicators in gold are in overbought territory.
“On a weekly basis, the RSI index has breached the 80 mark. This is only the sixth time in the last fifteen years. Corrections have always followed, with the lowest being a 5% correction in April this year. On other occasions, pullbacks have been between 8% and 20%,” he said.
However, he added that there is one significant caveat for gold.
“A signal for a correction begins when the asset returns from overbought territory; before this point, going against the trend is challenging, as price changes can be highly volatile due to waves of short-position margin calls,” he said.
Some analysts have noted that since the summer, gold’s corrections have been fairly shallow. The gold sell-off earlier this month pushed prices down by $80 before renewed buying triggered the run to $2,800.
Although risks are rising in the marketplace, David Morrison, Senior Market Analyst at Trade Nation, said that the gold market might not be quite ready for a correction.
“Gold is certainly overdue for a correction, or at the very least, a fair period of consolidation. Gold has rallied 40% from mid-February, from $1,990 to $2,790, in a pretty direct fashion,” he said. “At current levels, gold is still not as overbought as it was in April. So it could have some additional upside before it hits ‘decision time.’”
Some analysts have said that they don’t expect to see a significant correction in gold until prices push to $3,000 an ounce, which is an important psychological level. This level would roughly represent inflation-adjusted all-time highs.
While gold is expected to see some near-term volatility, many analysts continue to see lower prices as a buying opportunity. Analysts have noted that gold’s bull market remains well-supported by strong fundamentals, as geopolitical uncertainty remains elevated.
At the same time, many analysts remain bullish on gold as the Federal Reserve embarks on a new easing cycle. Despite robust economic data this week, markets still expect the Federal Reserve to cut rates by 25 basis points at the next two meetings and through most of 2025.
