(Kitco News) - Gold’s failed breakout at $3,400 an ounce, coupled with a relatively stable labor market, could keep prices in their current range for the near term. However, analysts remain convinced that gold still has plenty of upside potential this year.
Although gold continues to see some profit-taking heading into the weekend, the precious metal is eking out a modest weekly gain as prices consolidate further at elevated levels. Spot gold last traded at $3,323.50 an ounce, up 1% on the week.
Analysts note that gold’s ability to hold initial support above $3,300 an ounce shows there is underlying strength in the marketplace, even if the bulls face an uphill battle.
“Gold bears remain in control below $3,400, with weakness under $3,360 opening a path toward $3,300 and $3,000,” said Lukman Otunuga, Senior Market Analyst at FXTM. “Bulls can still fight back, but prices need to push back above $3,360 and beyond $3,400.”
Investors began taking profits in gold on Thursday as prices tested resistance at $3,400 an ounce. Selling pressure picked up on Friday after economic data showed the U.S. economy created 139,000 jobs in May, surpassing consensus forecasts. At the same time, the unemployment rate remained unchanged at 4.2%, and wages grew more than expected.
While the labor market is slowing, economists have said that the latest nonfarm payrolls report will not force the Federal Reserve to ease interest rates.
“The slowdown in the job market has been quite smooth so far, without many surprises. If payroll growth trudges on like this, the Fed will likely remain in ‘wait and see’ mode,” said Jeffrey Roach, Chief Economist for LPL Financial, in a note.
With employment data out of the way, the focus now turns to the inflation side of the economic equation, with the release of the May Consumer Price Index next week. However, the data is still not expected to support a rate cut before the summer.
“A hotter-than-expected CPI reading could strengthen the USD and further trim Fed cut bets, punishing gold as a result, while a softer CPI may push gold prices higher,” said Otunuga.
In a comment to Kitco News, Michael Brown, Senior Research Strategist at Pepperstone, said that although the Federal Reserve will remain neutral until at least the end of the year, gold remains an attractive asset.
“I think what’s quite telling is that despite the risk-on rally seen elsewhere, gold has remained resilient, which shows that there is still demand—be it from central banks diversifying their reserves or from market participants still wanting a bit of protection in their portfolios,” he said.
Tom Bruce, Macro Investment Strategist at Tanglewood Total Wealth Management, said that while gold looks comfortable trading within a range—resistance at $3,400 an ounce and support at $3,200—investors should be looking to add gold to their portfolios at lower price levels.
“Ultimately, the uptrend remains in place as we continue to see solid investment demand,” he said. “Even without a [bullish] catalyst, gold can grind higher as central banks continue to buy and diversify away from the U.S. dollar.”
Looking at the U.S. dollar, Bruce said that in the current environment, the greenback has room to move lower, which should benefit the yellow metal.
Gold May Be Stuck, But Other Precious Metals Are Breaking Out
While gold is consolidating in a new range, there is a lot of excitement in silver and platinum. Silver prices are looking to end the week near $36 an ounce—a 9% gain from last Friday and their highest levels in 13 years.
Meanwhile, platinum is rallying 11% this week as prices push solidly above $1,150 an ounce. The precious metal is seeing its highest price in three years.
Both metals have been attracting significant attention as they continue to trade at a steep discount to gold.
Investment demand is growing, as both metals are expected to face sharp supply deficits this year. In this environment, analysts have said that both silver and platinum are attractive value plays.
“The white metal’s steep discount to gold suggests that a move to the $40 handle may be a matter of time,” said Mike McGlone, Senior Market Strategist at Bloomberg Intelligence. “A ceiling around $1,100 an ounce [in platinum] that’s held since 2021 may be a speed bump on the way toward the next good resistance at about $1,300. The previous threshold around $1,000 has likely transitioned to pivotal support.”
Economic data to watch next week:
Wednesday: U.S. Consumer Price Index
Thursday: U.S. Producer Price, Weekly jobless claims
Friday: University of Michigan Consumer Sentiment
