(Kitco News) - Although gold appears stuck below $3,900 an ounce, the path of least resistance remains higher, according to one market analyst.
After ending September with its best monthly gain in 14 years, many analysts would not be surprised to see gold consolidate next week as the market waits for a new catalyst. However, with economic and geopolitical uncertainty surging through global financial markets, it might not be a very long wait.
“Given the recent rally for the gold price, there is no doubt in my mind that investors should take some profit off the table,” said Naeem Aslam, Chief Investment Officer at Zaye Capital Markets. “Having said this, by no means is this rally over, which means the path of least resistance is still very much skewed to the upside.”
Although gold’s rally appears to have peaked in the near term, it is looking to end its seventh consecutive week of gains. Spot gold last traded at $3,880.40 an ounce, up more than 3% from last Friday. Gold is seeing its longest weekly winning streak since the start of the year.
Michael Brown, Senior Market Analyst at Pepperstone, said that given how far gold has come since its August breakout, it’s not surprising to see investors take a bit of a break. However, he also doesn’t expect this rally to be over, and expects dips will continue to be bought.
“Getting to $4,000, which I still see as a reasonable target over the medium term, is probably a case of either a renewed round of geopolitical jitters giving the market a bit of a kick higher, or simply a case of waiting and watching, as physical demand shows scant sign of waning any time soon,” he said.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, noted that gold’s resilient price action comes as China celebrates Golden Week from Oct. 1 to 8. Despite slowing demand from China, the nation remains a dominant player in the marketplace.
“If this is it in terms of correcting when one of the world’s biggest consumers is away for more than a week, then it surely looks like we are heading higher,” Hansen said. “I’m still looking for a correction, but following this week’s price action, I’m starting to doubt we will get it.”
Hansen added that it’s difficult to see any long-term correction in gold when it remains well supported “by rate cuts, persistent fiscal debt, and geopolitical concerns—no longer limited to wars but increasingly tied to the breakdown of the post-WW2 world order.”
Analysts note that with the U.S. government shutdown, as Congress remains unable to pass new funding legislation, investor sentiment will be the primary driver of gold in the near term.
“At $3,900 per ounce, gold’s surge has little to do with the shutdown itself. Instead, it reflects deeper anxieties about the Federal Reserve’s ability to navigate its monetary policy dilemma,” said Eugenia Mykuliak, Founder & Executive Director of B2PRIME Group, a global financial services provider. “While the shutdown dominates headlines, the economic narrative is being shaped by structural forces—monetary uncertainty, fiscal strain, and global risk appetite. Gold’s rally seems driven less by the headlines and more by the broader macro picture.”
In a recent interview with Kitco News, Aakash Doshi said it will take time before the economy and markets feel the effects of the government shutdown.
“If it goes on beyond the month, then I think you’ll start to see negative growth consequences, which will be positive for gold. The longer this goes on, the risk of further downgrades from the rating agencies increases,” he said.
Looking at near-term price action, analysts have said they are watching initial support at $3,780 and $3,750, and then at $3,600 an ounce.
While economic data will be light next week as the U.S. government remains closed, economists will be focused more on private data, including the minutes from the Federal Reserve’s September monetary policy meeting and the University of Michigan’s preliminary Consumer Sentiment report.
Economic data to watch next week:
Wednesday: Minutes from the Federal Reserve September monetary policy meeting
Friday: Preliminary University of Michigan Consumer Sentiment
