(Kitco News) - The gold market is holding support above $3,000 an ounce, but it’s seeing some solid profit-taking ahead of the weekend, as prices were unable to hold their ground above $3,057 an ounce.
While the precious metal still has some upside potential, some analysts have said that consolidation at current levels would be healthy for the market’s long-term uptrend. Spot gold last traded at $3,014.20 an ounce down nearly 1% on the day, but the precious metal is still up 1% from last Friday.
George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, said that he could see gold prices trade around the $3,000 level over the next few months as investors get comfortable with the new breakout.
“I will have more faith in the sustainability of prices above $3,000 if it takes us some part of this year to get through it,” he said.
Although Milling-Stanley does not expect to see new record highs anytime soon, he also does not see any major headwinds that would drive prices considerably lower.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that gold could easily fall $100 without significantly impacting the current bullish uptrend.
“If you are an asset manager who wants to reallocate some money into gold out of your stock positions because you are worried about stagflation, you would probably welcome a hundred-dollar setback,” he said.
Hansen said that the first major support level he is watching is at $2,955, last month’s high before last week’s breakout.
David Morrison, Senior Market Analyst at Trade Nation, said that he will be watching to see if gold can hold the $3,000 level.
“Gold has pulled back from its highs, but not significantly,” he said. “The daily MACD remains elevated, but not seriously overbought. Nevertheless, it could benefit from more of a pullback to take it down to levels from which another rally could start. Gold could certainly push higher from current levels. But a test of $3,000 to see if it holds as support cannot be ruled out.”
In a note Friday, Thu Lan Nguyen, Head of Research at Commerzbank, said that inflation concerns could be holding gold back. On Wednesday, after leaving interest rates unchanged, the Federal Reserve updated its inflation expectations and now sees consumer prices rising 2.8% this year, up from December’s estimate of 2.5%.
Although Federal Reserve Chair Jerome Powell downplayed the inflation threat, Nguyen said that investors remain cautious.
“The Federal Reserve also initially assessed the 2021/22 inflation shock as transitory but ultimately had to take very aggressive countermeasures due to the sharp price increases. If a similar scenario were to materialize, it would be bad news for gold,” she said.
However, Nguyen added that any pullback in gold is still seen as a buying opportunity.
“This is probably because gold is increasingly in demand as a safe haven, not least because of geopolitical tensions. As long as this is the case, the downside potential for gold is likely to remain limited,” she said.
While gold’s technical momentum has driven prices above $3,000 an ounce, some analysts are saying that the precious metal could be sensitive to economic data—especially higher inflation numbers and weak economic activity, which would suggest growing risks of stagflation.
The key data to watch next week is the core Personal Consumption Expenditures Index, which excludes energy and food prices and is the Federal Reserve’s preferred inflation gauge. Markets will also be interested in seeing how U.S. consumers are holding up in a world of growing economic uncertainty.
Economic data to watch next week:
Monday: S&P Global flash manufacturing, service sector PMI
Tuesday: US Consumer Confidence, New Home Sales
Wednesday: US Durable Goods Orders
Thursday: Pending Home Sales, US final Q4 GDP
Friday: US Core PCE, Personal Income and Spending
