(Kitco News) - Gold and silver are seeing modest gains in a quiet holiday trading session as U.S. markets are closed for Thanksgiving.
Spot gold last traded at $2,643.80 an ounce, up 0.38% on the day, while spot silver last traded at $30.20 an ounce, up 0.53%. While the precious metals continue to recover from Monday’s sharp selloff, some analysts are warning investors not to read too much into Thursday’s price action as market liquidity is extremely thin.
In a comment to Kitco News, Kelvin Wong, Senior Market Analyst at OANDA, said that although gold's long-term uptrend remains intact, the precious metal is caught in a medium-term corrective cycle.
Wong noted that shifting market expectations around the Federal Reserve’s monetary policy remain a growing headwind for gold. Although markets continue to expect the U.S. central bank to cut rates next month, there are growing concerns that persistently elevated inflation could shorten the current easing cycle.
On Wednesday, the core Personal Consumption Expenditures (PCE) index, which strips out volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge, showed prices rose 2.8% in the 12 months through October. Inflation remains well above the central bank’s 2% target.
Despite the stubborn inflation data, the CME FedWatch Tool shows markets see a 70% chance of a 25-basis-point rate cut next month.
Wong said that although inflation fears are weighing on gold, there are other supporting factors in the marketplace.
“Overall, the major uptrend phase of gold remains intact, supported by higher U.S. budget deficits due to Trump's upcoming steep corporate tax cuts and stagflationary risk from a potential trade war between the U.S. and the rest of the world,” he said.
However, Wong also warned that prices could continue to move lower in the near term.
“The major key support zone to watch will be US$2,484/415 (also the 200-day moving average) as this potential medium-term corrective cycle unfolds for gold within its major uptrend phase,” he said.
David Morrison, Senior Market Analyst at Trade Nation, said that although gold is seeing some short-term bullish momentum, the market looks vulnerable as prices remain below $2,660 an ounce.
He added that the key will be to see if $2,600 can hold as support.
“A break below here could see gold pull back to $2,500, a level last seen in early September. This kind of pullback would drive a tank through bullish sentiment. But it would certainly reset the MACD at lower levels, and that could trigger a fresh round of buying and renewed hopes of fresh record highs,” he said.
The silver market is also trading in a precarious position as it manages to hold important support above $30 an ounce. However, Christopher Lewis, Market Analyst at FXEmpire, said that the key level to watch is $31.20 an ounce, which is near the market's 50-day Exponential Moving Average (EMA).
“If we can clear that, then it allows silver to go higher, perhaps as high as $35. On the other hand, if we turn around and break down below the 200-day EMA, then it’s possible that we could really start to fall apart,” he said in a note. “That being said, I do think that you’ve got a situation where, at the very least, I think we’re going to have to look at this through the prism of a scenario where you’re just looking at this as trying to build a little bit of a base and try to build up enough confidence to turn around and go higher.”
Along with the Federal Reserve’s monetary policy, analysts also note that resilient strength in the U.S. dollar remains a significant headwind for gold and silver.
Many analysts remain bullish on the U.S. dollar and see any weakness as a buying opportunity. The U.S. dollar index has managed to hold initial support at 106 points.
“I continue to reside firmly in the ‘U.S. exceptionalism’ camp. I need not repeat the laundry list of issues facing the eurozone, nor bang on about the ‘stagflation-lite’ outlook here in the UK, but suffice to say that neither is particularly bullish for the respective currencies,” said Michael Brown, Senior Research Strategist at Pepperstone, in a note Thursday.
Brown also provided investors with some unsolicited advice.
“I’d strongly suggest that today is a good day for putting one’s feet up and indulging in a chosen pastime, given the thin conditions that are likely to prevail and the barren economic data docket,” he said.
