(Kitco News) – Another down week for gold prices saw industry professionals and regular investors throwing in the towel on the precious metal – at least in the near term – as optimism returned to the broader market.
Spot gold kicked off the week trading at $3281.36 per ounce, and traded in a relatively narrow range until the yellow metal saw its most precipitous drop-off of the week at 2:45 a.m. EDT, sliding from $3,277.53 to $3,221.36 in just half an hour.
After another dip down to test $3,208 per ounce just before 7:00 a.m. Eastern, gold prices stabilized and began a multi-day stretch of sideways trading that saw the yellow metal rise no higher than $3,262 per ounce, and fall no lower than $3,217.
The next sharp sell-off occurred at 7:15 a.m. Eastern on Wednesday morning, when spot gold fell from $3,237 per ounce right through the $3,200 support level before bouncing just below $3,180, which would prove to be a key pivot point for the gold price.
After grinding along in the tightest possible channel near the $3,180 level, Asian traders ultimately drove gold prices down to their weekly low of $3,126 per ounce early Thursday morning.
This level brought buyers back in, however, and the European and North American sessions saw gold prices rise all the way back above $3,250 per ounce by early Thursday evening.
But after a failure to break higher, and another failure to hold near-term support above $3,220, gold began its final significant dip lower, ultimately bottoming out near $3,163 per ounce at 7:45 a.m. EDT on Friday morning.
After that, North American traders were content to push gold prices slowly and steadily back up to the very edge of $3,200 per ounce, but there was not enough bullish momentum to mount any serious challenge to that resistance level ahead of the weekend.
The latest Kitco News Weekly Gold Survey showed industry experts hunkering down in the bear cave next week, while retail traders relinquished their bullish bias after the yellow metal’s recent slide.
“Down,” said Adrian Day, president of Adrian Day Asset Management. “Still more downside possible in coming weeks, as US tariffs get reset. After that lies the next great buying opportunity.”
“Lower,” said Adam Button, head of currency strategy at Forexlive.com. “The momentum trade is lower at the moment. We will need to find a floor, but that’s likely above $3000.”
“Up,” said Darin Newsom, senior market analyst at Barchart.com. “From a technical point of view, this makes the most sense given the three choices (up, down, or sideways). The reality is I don’t know, nor does anyone else. It’s all just guessing at this point. However, from a technical point of view (worth less each passing week), it could be argued that the June gold daily chart shows a short-term uptrend. The key will be if it can hold Thursday’s low of $3,123.30.”
“Fundamentally, the market still seems to be bullish given the continued chatter about central banks around the world buying gold,” Newsom added. “But maybe the stories lag reality, as we’ve seen in other markets over time. The bottom line is I’ll stick with up for next week, though I’m not going all-in on a rally.”
Mark Leibovit, publisher of the VR Metals/Resource Letter, said he’s been trading the short size via ZSL and GLL. “Exited early yesterday,” he said. “Bottom line, I feel gold may have topped out for the time being. Downside risk is 2900.”
Kevin Grady, president of Phoenix Futures and Options, thinks gold likely has further to fall in the short and medium term as the overall market sentiment improves.
“I'm a little bearish for next week,” he said. “I think as these trade deals start coming in, we're going to test $3,000.
“I think stocks are ready to rally,” Grady added. “We're basically flat on the year for stocks, or close, and I think as these trade deals come in, I think that was a lot of the froth [in gold] that was in there. I don't think it was a lot of the central banks and things like that who were buying, I think it was a lot of specs.”
“I think a lot of those guys are getting out, and right now I would be very leery being long.”
Grady doesn’t see much interest in the other precious metals these days, and even in gold, he said the volumes are declining.
“The volumes lately have been anemic,” he said. “Even from the last $300 up, on days that by 11 a.m. we should have 250,000 to 300,000 contracts done, and the market's up $110, they're doing 140,000. I think a lot of the banks are stepping out. I think there's a lot of risk off in the market from the main players. You've seen a lot of algorithmic trading and quant trading in the market, and I think that's who's in the market right now. The banks are just waiting in risk-off mode until these deals get sorted out.”
“I think we're definitely going to test $3,000,” Grady said. “I'd like to see what happens around that level.”
This week, 16 analysts participated in the Kitco News Gold Survey, with Wall Street moving firmly into bearish territory after a week of balanced views on gold’s near-term potential. Only two experts, or 12%, expected to see gold prices rise during the week ahead, while 10 analysts, representing 63%, predicted price declines for the yellow metal. The remaining four experts, or 25%, saw gold trading sideways next week.
Meanwhile, 294 votes were cast in Kitco’s online poll, with Main Street finally abandoning its majority bullish bias after two straight weeks of losses. 100 retail traders, or 34%, still looked for gold prices to rise higher next week, but 123, or 42%, expected gold to trade lower. The remaining 71 investors, representing 24% of the total, saw consolidation for gold prices during the week ahead.
After a very busy week of economic data, next week has only a handful of potentially impactful releases. Traders will have little to sink their teeth into for the early part of the week, but they will pay attention to weekly jobless claims, S&P Global flash PMI, and existing home sales for April on Thursday, and new home sales on Friday.
Markets will also hear from virtually every member of the Federal Reserve next week, with the Fed’s Jefferson, Williams, Logan, Kashkari, Barkin, Bostic, Collins, Musalem, Kugler, Daly, and Hammack all scheduled to speak throughout the week, capped off by Fed Chair Jerome Powell on Sunday afternoon.
Marc Chandler, managing director at Bannockburn Global Forex, noted that gold suffered its biggest weekly loss since last November when it fell 4.25% last week. “The momentum indicators are getting stretched, but it may not prevent some more profit-taking,” he said. “A break of $3120 may risk losses toward $3030-$3045.”
“US rates were mixed this past week, but the Dollar Index rose for the fourth consecutive week,” Chandler added. “Perhaps the high near record prices have seen central banks pull back from chasing the market.”
“Down,” said Alex Kuptsikevich, senior market analyst at FxPro, who noted that after gold lost about 4% in the outgoing week, the wild swings appear to have exhausted the bulls.
“Fundamentally, there was less attraction to safe-haven gold due to the decreasing degree of uncertainty,” he said. “At least this is how the situation looked initially. As a result, the price of an ounce was pushed all the way down to $3120. It was followed by a $120 rebound, but it was crushed by sellers relatively quickly.”
“The last hope for the bulls is the level of the 50-day moving average near $3160: as long as the gold keeps staying above it, the past decline can be called a correction,” Kuptsikevich said. “In our view, last month was the start of a broad correction from the entire rally of the last three years. The sellers are on the side of not only high prices by historical standards, but also the return of the greed sentiment in the U.S. markets, playing into the capital flow from gold to equities.”
“Bond markets are also working in the same direction, with rising government bond yields increasing the relative attractiveness versus non-yielding gold,” he added.
Sean Lusk, co-director of commercial hedging at Walsh Trading, believes Trump’s trade strategy is beginning to work, and markets are reflecting the renewed optimism.
“Things that were completely uncertain, we're starting to see a little more certainty come back in the market,” he said. “Now, are we out of the woods yet? No, of course not. You’ve got a lot of stuff to get through, but you got a trade deal done with England. You got some really good deals for future endeavors with the Middle East, with investment into the United States, and you’ve got possible peace deals coming in the Middle East.”
“You can't look at the happenings in the last week to 10 days and say anything's bad,” Lusk said. “It's pretty positive. The potential exists for the momentum to keep rolling and open up some new markets for our businesses. And once you get more certainty, there's less of a reason to be in a safe-haven trade.”
Lusk said the gold market was in uncharted waters up at $3,500. “You just kept charging up,” he said. “Since right after the election, we've rallied almost a thousand dollars, so we're getting some needed pullback. We're at key support here, around $3,180 to $3,200. We dipped below it a few times, but it's not where you trade, it's where you settle.”
“This opens up the door to take the market right back down to $3,000.”
Up,” said Michael Moor, founder of Moor Analytics. “The break back above 31482 (+2.3 tics per/hour) now warns of decent strength, likely for days—we have rallied $107.6. Decent trade back below will warn of decent pressure again and will take bear calls from above off hold. In a Higher time frame, we are still in an overall bull trend from August of 2018, 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 $1,361.5 FULFILLING THE MAXIMUM! This is ON HOLD.”
“On a Lower time frame, the failure below 34839 (+4 tics per/hour) brought in $360.6 of pressure,” Moor added. “This is ON HOLD. The break back above 31482 (+2.3 tics per/hour) now warns of decent strength, likely for days—we have rallied $107.6. Decent trade back below will warn of decent pressure again and will take bear calls from above off hold.”
“Get long on a pullback after a decent penetration above 32381 (-11 tics per/hour starting at 7:00 am), or on a pullback after a decent penetration above 32443 (-9 tics per/hour) and look for decent strength for $76 minimum,” Moor advised, “but if we break above either of these decently and back below decently, look for decent pressure.”
And Kitco Senior Analyst Jim Wyckoff sees gold prices continuing to consolidate within a broad channel next week. “More sideways and choppy price action next week, as traders await fresh markets-moving fundamental developments.”
At the time of writing, spot gold last traded at $3,199.25 per ounce for a loss of 1.25% on the day and nearly 4% on the week.
