(Kitco News) - Not only has gold faced solid selling pressure after reaching an intraday high of $2,800 an ounce, but its weekly winning streak has also come to an end.
Gold's performance heading into the weekend raises the risk that the precious metal could see further correction as Americans head to the polls next week.
Many analysts have noted that political uncertainty, driven by the statistical tie between former President Donald Trump and Vice President Kamala Harris, has been a major factor behind gold’s recent momentum. However, some analysts suggest that a classic “buy the rumor, sell the news” pattern may be forming in the marketplace.
Simultaneously, as fundamental support wanes, gold is beginning to see a shift in its technical outlook, with some analysts viewing the yellow metal as overbought.
“There is no doubt that gold prices have gone too far and too quickly, and investors must exercise caution,” said Naeem Aslam, Chief Investment Officer at Zaye Capital Markets.
Phillip Streible, Chief Market Strategist at Blue Line Futures, said he expects to see market volatility ease after Tuesday’s election, which could impact gold’s appeal as a safe-haven asset.
Alongside cooling political rhetoric in the U.S., analysts are also cautioning investors that gold prices could be sensitive to the Federal Reserve’s monetary policy decision next week.
Although markets have priced in a 25 basis-point rate cut at the upcoming FOMC meeting, there is growing uncertainty surrounding future rate cuts, particularly with inflation remaining relatively elevated.
On Thursday, the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures Index (which excludes volatile food and energy prices), rose 2.7% over the past 12 months. Inflation has held at this level for the last three months.
Analysts have indicated that it may be challenging for the Federal Reserve to aggressively lower interest rates through 2025 if inflation persists at elevated levels.
Barbara Lambrecht, Commodity Analyst at Commerzbank, highlighted the growing risks in gold.
“We are skeptical about whether its massive rise of around USD 300 within two months is justified. After all, major drivers are missing, as the market’s expectations of interest rate cuts have declined significantly since the beginning of October,” she noted.
Alex Kuptsikevich, Chief Market Analyst at FxPro, said he anticipates gold prices will fall in the near term as the Federal Reserve has become less dovish than it was at the start of October.
“We believe these factors are behind the start of the sell-off in gold. It would be premature to talk about the start of a major correction, but the market is clearly letting off steam, taking profits, and reducing risk ahead of the election and the Fed meeting next week,” he stated. “A typical correction could bring gold to the $2,680-2,700 range before any new upside momentum emerges.”
Although near-term downside risks in the gold market are increasing, Streible added that investors should not mistake a correction for a broader downturn. He noted that price dips will likely continue to attract buyers.
“We’re firmly convinced that government spending will continue,” he said. “We also expect ongoing geopolitical uncertainty, and in this environment, we believe that central banks will keep buying gold and divesting from foreign fiat currencies. It’s better to own a hard asset that's easily convertible in any currency.”
While gold may seem slightly overbought, Jesse Colombo, an Independent Precious Metals Analyst and author of The Bubble Bubble Report on Substack, noted that gold remains in a solid uptrend as prices consolidate between $2,700 and $2,800 an ounce.
“Bull runs rarely end with a whimper but with a bang. I don't believe we've seen the true fireworks yet,” he told Kitco News. “We haven't seen a high-volume blow-off top or buying climax yet, which typically marks the end of significant trends. Instead, it’s been very orderly and, frankly, tame...and boring!”
David Brady, an Independent Analyst and author of The FIPEST Report on Substack, noted that with gold’s current momentum, there is room for it to test resistance at $3,000 an ounce before a major selloff might occur.
Economic data to watch next week:
Monday: Reserve Bank of Australia monetary policy decision
Tuesday: ISM Services PMI, U.S. Presidential and Congressional elections
Thursday: Bank of England monetary policy decision, U.S. weekly jobless claims, Federal Reserve monetary policy decision
Friday: Preliminary University of Michigan Consumer Sentiment
