(Kitco News) - It has been a milestone week for gold and silver, as prices hit new all-time highs above $4,000 and $50 an ounce, respectively. Although the precious metals sector is experiencing unprecedented bullish momentum, some analysts are warning investors to exercise caution at these levels.
Although gold has been unable to sustain this week’s gains above $4,000 an ounce, it is still on track to end its eighth consecutive week higher. Spot gold last traded at $3,980.70 an ounce, up more than 2% from last Friday.
The yellow metal’s surging momentum over the past two months has driven prices up 51% so far this year.
Meanwhile, silver is also marking its eighth consecutive week of gains, with nominal prices surpassing the 2011 record highs above $50 an ounce. Similar to gold, silver is ending the week down from its intraday record high. Spot silver last traded at $49.99 an ounce, up 4% on the week. Year to date, silver prices are up more than 71%.
Some analysts note that silver continues to outperform gold, as robust industrial demand drives renewed investor interest in the precious metal. Meanwhile, a potential peace agreement between Israel and Hamas is weighing on gold’s near-term appeal as a safe-haven hedge against geopolitical uncertainty.
While sentiment remains strongly bullish for both gold and silver, analysts note that the $4,000 and $50 levels could represent technical exhaustion points for a sector that is significantly overbought.
“While easing geopolitical tensions in the Middle East could provide an opportunity for bears to strike, the bullish cocktail of fundamental themes may limit downside losses for gold in the longer term,” said Lukman Otunuga, Senior Market Analyst at FXTM. “Short term, technical indicators are signalling a possible correction if prices cleanly break below the $3,950 support. A break above $4,000 could signal a move back toward $4,050 and fresh all-time highs.”
In an interview with Kitco News, Michele Schneider, Chief Market Strategist at MarketGauge, said she has exited all her gold and silver positions as she sees a bit too much FOMO (fear of missing out sentiment) in the marketplace.
“Gold and silver have had an incredible run, so it's okay to take some profits and wait for a new opportunity to buy,” she said.
Although gold’s fundamentals remain solid, Schneider said she sees risks that gold could be forming a 2011-style top as investment demand has surged in recent months. According to data from the World Gold Council, investment demand in gold-backed exchange-traded funds (ETFs) increased by a record 221.7 tonnes, valued at nearly $26 billion, in the third quarter. Robust demand has pushed gold holdings to within 2% of the 2020 record highs.
“I think we need a correction, and then a consolidation, and then a breakout. That is when I would get back in,” she said. “We can afford to be a little patient to wait to see what happens.”
Christopher Vecchio, Head of Futures Strategies and Forex at Tastylive.com, said he expects gold to see higher volatility in the near term, but he continues to look for buying opportunities.
He added that gold and silver are still in the early stages of their long-term bull cycle.
“The tenets that have carried gold to $4,000 an ounce are still around,” he said. “Global debt continues to grow and geopolitical uncertainty remains elevated as nations put less faith in the U.S.”
Paul Williams, Managing Director of gold and silver supplier Solomon Global, said that although gold prices are elevated, he wouldn’t underestimate the momentum in the marketplace. He added that the market won’t need much of a catalyst to see sustained gains above $4,000 an ounce.
“$4,000 is a key psychological level; it’s natural for the market to pause and consolidate around such a milestone, and there are likely to be oscillations between $3,900 and $4,100,” he said. “We have seen several short-term pullbacks this year, each met with strong buying support. The fundamental drivers that brought gold here haven’t gone away.”
“From a retail investor perspective, there’s growing awareness of fiscal pressures and rising debt, as well as weakening confidence in fiat currencies (particularly the U.S. dollar), and uncertainty around government policy,” Williams added. “There’s increasing realisation that all is not right with the modern financial order. Many people are looking for stability and greater control over their wealth, which is fuelling interest in tangible assets such as gold. Demand continues to be driven by institutions, with central banks still accumulating at a pace. However, retail investors are becoming a greater part of the story as gold becomes more mainstream.”
The U.S. Congress has been unable to pass any new funding legislation to end the current government shutdown, so economic data will be limited once again next week. However, markets will be paying attention to data from the New York Federal Reserve and the Philadelphia Federal Reserve.
Markets could also be sensitive to headlines from the International Monetary Fund and the World Bank’s annual meetings in Washington next week.
Economic data to watch next week:
Tuesday: Fed Chair Jerome Powell to participate in a moderated discussion at the National Association for Business Economics Annual Meeting
Wednesday: US Empire State Manufacturing Survey
Thursday: Philadelphia Federal Reserve Business Survey
