(Kitco News) – After another run up to fresh all-time highs, gold traders got a Halloween scare on Thursday morning, leading to a sharp sell-off which, despite a modest rally on weak U.S. data, saw gold ultimately finish more or less where it began.
Spot gold kicked off the week trading just above $2,733 per ounce, and hit a high of $2,744 during the European session before falling back to support near $2,730 in the early morning. North American markets then opened and quickly established $2,740 as the floor in the spot market, which would hold until the Halloween sell-off.
After a rally to $2,757 per ounce by 10:00 p.m. on Monday, and multiple retests of the $2,750 level of support, North American traders once again propelled gold to a series of fresh weekly highs on Tuesday which saw the spot price rise as high as $2788 overnight before retracing back to the mid-2770s by Wednesday's open.
Again, the North American session pushed the price higher, but after multiple attempts to break through resistance at $2,788 proved futile, gold began a gradual slide back into the $2,775 range on Wednesday evening.
The real surprise arrived on Thursday morning, as in-line core PCE data triggered a sharp sell-the-news event that saw the spot price of the yellow metal fall from $2,781 per ounce at 8:00 a.m. Eastern all the way down to $2,734 less than three hours later. Traders then spent the rest of Thursday's session and the overnight pushing gold higher, but they were unable to break above resistance at $2,755 per ounce.
Friday morning brought another scare, as the October nonfarm payrolls report showed a meager 12,000 new jobs created last month, far below the 100,000 expected, along with downward revisions to the prior months' data. This drove gold to $2,761 per ounce in the immediate aftermath, but the North American open this time brought downward momentum, driving gold prices below $2,740 once again, where they languished just above the Sunday evening open price through Friday afternoon.
The latest Kitco News Weekly Gold Survey showed weak bullish sentiment from both industry experts and retail traders, with the recent retracement and election uncertainty clearly weighing on metals markets.
“I am Neutral on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “It’s a bit more difficult to predict short term direction with all of the event risk of the coming days (Middle East, US Election, FOMC Meeting.) It’s clear that Gold has had a big move up toward $2,750 and appears to be starting a normal consolidation, but the underlying long-term uptrend remains intact for now.”
Marc Chandler, managing director at Bannockburn Global Forex, said much of the supportive possibilities next week are already priced in, so the risks remain skewed to the downside.
“Gold set a record high in recent days, but stopped shy of $2800,” he said. “It was notable that it sold off hard as US equities dropped on October 31, almost as if it was being liquidated to meet margin calls.”
He noted that five G10 central banks meet next week. “Fed and BOE to cut 25 bp,” Chandler said. “Sweden to cut 50. Norway and Australia stand pat.”
“Then of course it’s the US election,” he continued. “I suspect a Trump victory, even though discounted, is good for gold, while a Harris victory the implications are less obvious. I show initial support now near $2730 and a break of $2700 needed to weaken the charts.”
“Up,” said Adrian Day, president of Adrian Day Asset Management. “Gold’s resilience is astonishing. All the reasons different groups are buying remain in place. Lower interest rates amid a sluggish economy and inflation that is not conquered is a potent mix for gold.”
“Down,” said Darin Newsom, senior market analyst at Barchart.com. “I’m going to stick with this for a second consecutive week, though I have no idea how next week is going to play out. Anyone who says they can predict next week’s market action, in any sector, will likely try to sell you the London Bridge next.”
“As we know, Tuesday brings the Chaos of the next US presidential election with the US FOMC meeting to follow on Wednesday and Thursday,” he said. “The next interest rate announcement comes at the end of the meeting, with the Fed fund futures forward curve indicating another 25 basis point cut. Will it happen? Again, I have no idea, though theoretically the FOMC is supposed to be outside the political fray. (Anyone who believes that, though, will likely buy the London Bridge as well.)”
“Then comes the Goldman Roll starting Thursday, which will include moving long Dec gold futures forward or getting out of the market,” Newsom added. “Whatever happens, next week is going to be interesting.”
“I see the price of gold going higher next week,” said Rich Checkan, president and COO of Asset Strategies International. “There are quite a few variables that can trigger price movements one way or the other. The disappointing jobs figures today might be enough to nudge the Federal Reserve to cut an additional 25 basis points next week. Falling interest rates are good for gold appreciation. The election results in the U.S. could very well elicit fear from 50% of the populace regardless of which candidate emerges victorious. And a long protracted and contested election result could stoke the flames of fear.”
“However, in the end, I believe the profit-taking we saw over the past couple days will be enough to allow gold to move higher toward that $2,800 figure,” he said. “Long term, there is no doubt prices are going higher. Gold is a monetary antidote to fiscal irresponsibility. As a result of this week’s profit-taking, I like gold’s chances to move higher next week as well.”
Sean Lusk, co-director of commercial hedging at Walsh Trading, was looking at the morning’s payrolls report with an eye to the Fed meeting and gold prices.
“I think some of those storms did have some small role, but if you look at the prior months’ revisions, that tells you all you need to know, doesn't it?” he said. “That there's underlying issues. You take away government creation and there is no growth, really. That's an issue.”
“Why did the Fed come out and say we're going to go full-on dove, doveish policy to the max? And then you have a jobs report that totally blows what they're seeing out of the water. This number and the prior months’ revisions, lay out what the Fed has been telling us. There hasn't been any growth for a while, and the growth we do see comes from Uncle Sam. And Uncle Sam historically is not a sustainable job creator.”
“We don't want to ever fight the Fed, no matter how much you may disagree with them from time to time, you don't ever fight them in the market,” Lusk added. “And that's what they're telling you.”
Looking at the potential impact on gold prices, Lusk said that while both candidates, and both parties, will keep printing money and spending it, he still expects different moves for the yellow metal depending on who wins.
“I think the initial reaction here is, if Harris wins, there's going to be more uncertainty, so I think [gold] moves up a little bit,” he said. “If Trump wins, then Bitcoin and the cryptos are going to take off. Does gold follow? I don't know. Equity-wise, there's going to be a fear of tariffs and this, that, and the other thing, and that may be cause concern for the stock market. But what we've seen from the stock market and gold is that they've been running together essentially for the last two years, so any wipeout in the stock market has meant some profit-taking in gold, and vice versa. But there could be a disconnect finally coming where they trade inverse of each other if we do have a big drop in stocks.”
Lusk said that any way you slice it, there’s more upside than downside risk for the yellow metal next week, so he thinks a strategic long position makes sense. “I think I would be in some options.”
This week, 17 analysts participated in the Kitco News Gold Survey, and last week’s narrow bullish majority narrowed further still. Nine experts, or 53%, expected to see gold prices rise during the week ahead, while six analysts, or 35%, predicted a price decline for the precious metal. The remaining two analysts, representing 12% of the total, were waiting to see what the election and the Fed would bring.
Meanwhile, 139 votes were cast in Kitco’s online poll, with a slightly healthier majority of Main Street investors holding a bullish bias, though many votes were cast before the Halloween sell-off. 85 retail traders, or 61%, looked for gold prices to rise next week, while another 31, or 22%, expected the yellow metal to trade lower. The remaining 23 investors, representing 17% of the total, thought discretion the better part of valor ahead of next week’s potential fireworks.
The U.S. election will dominate the news cycle next week, with market participants uncertain whether a winner will be declared after the polls close on Tuesday evening. But central banks also take center stage once again, with the Reserve Bank of Australia's monetary policy decision scheduled for Monday evening, and the Bank of England’s and Federal Reserve’s monetary policy decisions delivered on Thursday.
Markets will also pay attention to the ISM Services PMI on Tuesday morning, U.S. weekly jobless claims on Thursday, and the Friday morning release of preliminary University of Michigan consumer sentiment.
James Stanley, senior market strategist at Forex.com, thinks gold will make fresh gains next week. “I’m sticking with what’s worked,” he said. “Over the past couple of months, there were multiple episodes of stacking pullback potential. But, to date, buyers have just continued to pounce on pullbacks and this week’s stalling just inside of 2800 hints to me that resistance is more of a natural effect after a strong run. And buyers haven’t given up control yet, so remaining bullish until evidence from price action suggests otherwise.”
Adam Button, head of currency strategy at Forexlive.com, thinks the smart place for gold traders to be next week is on the sidelines. “It’s unwise to make bets on a close election,” he said. “There will be plenty of trades after the dust settles.”
Button was also unpacking the implications of Friday morning’s surprisingly weak employment data. “It's tough to draw any conclusions from a nonfarm payroll report,” he said. “It was a noisy report because of hurricanes and strikes, and you can see that in the market reaction. Initially, there was some dollar selling, and then the market started to have some second thoughts.”
He said the main outcome of October’s NFP will be cementing the central bank’s rate path. “If I see the weakness, I think the Fed is going to see the weakness,” he said. “Obviously a rate cut next week is a done deal, and I think it's a done deal in December as well.”
“The only thing that matters is next Tuesday,” Button said, looking ahead to election night. “I think there are some real issues around spending in a divided Congress, and a [Republican] sweep would materially change the path for Fed rates, for gold, for deficit spending, in ways that are very difficult to predict.”
Button said that despite most, if not all, of the likely election scenarios being supportive of gold prices, he still thinks the smart move is to sit it out in the near term until there’s clarity.
“I don't think there's any edge in guessing at election outcomes, nor in anticipating scenarios of discord or uncertainty,” he said. “The range of outcomes is so wide – right down to the concession speeches or the acceptance speeches – that there's just no edge and the risk-reward isn't there. You can't make a meaningful calculation. You could get a scenario where you get this deep uncertainty, highly contested, which a lot of people would say is good for gold. But you could get a scenario where the S&P 500 falls 5%. You really want to be long gold then, with a sell-everything kind of scenario?”
“I don't love this current regime of higher yield and higher gold and a higher dollar,” he added. “That's a tough one to sustain.”
Alex Kuptsikevich, senior market analyst at FxPro, said that the steady uptick in wage growth and Core PCE in recent months were behind the recent 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 said.
“A typical correction could take gold to the $2680-2700 area before we see any fresh upside momentum,” Kuptsikevich added. “However, we should also note that we should be prepared for gold to enter a bear market on a sharp dip below $2630.”
“I see gold headed down,” 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. Part of this is a prediction I made of $151 minimum, $954 (+) maximum from $2,148.4 – of which we have attained $653.4 so far. These are ON HOLD.”
“In a lower timeframe, the trade below 27730 (+4 tics per/hour) warns of decent pressure — we have seen $28.5,” Moor said, “but decent trade back above where this comes in today $2,784.0 (+4 tics per/hour starting at 11:20am) will reestablish bullish calls. Decent trade below 27014 (+2 per/hour starting at 11:20am) will project this downward $110 (+) based off a well-formed formation.”
“Anticipating a retracement, especially if DJT wins,” said Mark Leibovit, publisher of the VR Metals/Resource Letter. “Calming of geopolitical which incited the rally should lead to a pullback.”
At the time of writing, spot gold last traded at $2,734.64 per ounce for a loss of 0.34% on the day, and the yellow metal is essentially flat on the week.
