(Kitco News) - Gold prices have stumbled slightly around $3,800 an ounce, but many analysts do not expect this new resistance level to pose much of a challenge, as inflation is not hot enough to stop the Federal Reserve from continuing down its path of easing monetary policy.
Amid its unstoppable rally since last month’s breakout, gold is ending Friday at another all-time high for the fifth consecutive week, moving back within striking distance of $3,800 an ounce. Spot gold last traded at $3,775.69 an ounce, up nearly 2.5% since last Friday.
Although momentum indicators highlight that gold is significantly overstretched, many analysts have said it is difficult to ignore the market's bullish momentum, which is driven by solid fundamentals.
“I think gold prices can continue to go higher as the world looks for an alternative to the U.S. dollar,” said Chris Mancini, co-Portfolio Manager of GOLDX at Gabelli Funds.
The gold market is ending the week near session highs after the U.S. Department of Commerce announced Friday that its core Personal Consumption Expenditures (PCE) index—which excludes volatile food and energy prices and is the Federal Reserve’s preferred inflation gauge—held steady at 2.9% over the last 12 months.
While inflation remains above the Federal Reserve’s target, economists have said it is not unmanageable, as U.S. consumers and the economy remain resilient.
Aaron Hill, Chief Analyst at Australia-based global broker FP Markets, said the Federal Reserve has ample room to cut rates by at least 50 basis points by the end of the year.
“Gold has the firepower to smash past $3,800 on central bank hoarding (900+ tons eyed for 2025) and ETF inflows, with UBS and ANZ pegging end-2025 targets there amid geopolitical jitters—expect a quick surge, not endless consolidation, as bulls reload,” he said.
According to the CME FedWatch Tool, markets see an 87% chance of another rate cut next month and a 65% chance of further easing in December.
Fawad Razaqzada, Market Analyst at City Index and FOREX.com, said in a note to Kitco News that it would take a significant shift in interest rate expectations to impact gold’s momentum.
“The metal has been supported by strong and consistent central bank buying, all owing to concerns about US debt and the sticky nature of inflation. Those factors and speculative buying are likely to keep gold supported for a while yet,” he said. “But if next week’s data causes expectations over a December cut to fall significantly, then the dollar should move higher and that could hold back gold. The opposite is also true. All told, unless something major changes fundamentally, I think the existing drivers should help the metal cross the $3,800 level soon.”
While next week’s economic calendar is relatively light, economists note that gold and the U.S. dollar will be sensitive to critical employment data. Any further weakness in the U.S. labor market will solidify expectations for lower U.S. interest rates, which will support gold prices.
Barbara Lambrecht, Commodity Analyst at Commerzbank, said that while she is bullish on gold, the market may need a new spark to push prices past $3,800. However, she added that investors might be a little too optimistic about the precious metal in the near term.
“If the US labor market report disappoints for the third time in a row and indicates a noticeable deterioration in the situation, this could be a possible trigger, as the market would then likely price in faster interest rate cuts by the Fed. However, our economists expect a slight improvement in the US labor market,” she said in a note.
While there is strong bullish sentiment in the marketplace, some analysts have said that investors might want to exercise caution at current levels. Although nobody is calling for a major correction in gold, some analysts have said it could enter a new consolidation phase.
David Morrison, Senior Market Analyst at Trade Nation, said that positive economic data this past week puts the Federal Reserve in a tough spot, which could slow gold’s gains.
“The Fed is in a very difficult position, and President Trump is likely to keep up his personal attacks on Chair Powell and other colleagues as we approach the next two monetary policy meetings. Despite this, I think the Fed may choose to emphasise its independence and only make one more cut this year – something it can easily justify given the strength of the US economy,” he said. “As for gold, it came very close to breaking above $3,800 earlier this week, and it has started to rally once again after a modest pullback. But the daily MACD continues to be very overbought, and I can’t help thinking that it will have to reset lower, either through a deeper correction or a period of consolidation, before gold is able to build enough momentum to take off to fresh highs. Gold looks likely to make fresh record highs before it finally tops out. But the likelihood is that it will need a significant correction first.”
Economic data to watch next week:
Monday: US Pending Home Sales
Tuesday: US JOLTS Job Openings, US Consumer Confidence
Wednesday: US ADP Nonfarm Payrolls, ISM Manufacturing PMI
Thursday: US weekly jobless claims
Friday: US Nonfarm Payrolls, ISM Services PMI
