(Kitco News) – Gold took traders on another momentous journey this week, with prices pushing well above the erstwhile-unthinkable $4,000 per ounce level on their way to its eighth straight weekly gain.
Spot gold kicked off the week trading at $3,890.51, and it wasted no time setting a series of higher highs and higher lows in the early going. By midnight, the yellow metal was already trading at $3,940 per ounce, and two hours after the North American open, spot gold was above $3,962.
After setting a triple top near $3,974 shortly after 12:30 am during the Asian session, gold prices slid back down to support near $3,945 per ounce, but buyers returned with a vengeance, and by 11:00 a.m. Eastern, gold had reached $3,986 per ounce. The dip down to $3,965 was short-lived, and spot prices were once again approaching the all-time high from earlier in the day heading into the North American close.
The stage was now set for Asian traders to deliver the breakthrough, and they did not disappoint, pushing gold to within a dollar of $4,000 per ounce by 8:15 p.m., and breaking definitively through that level shortly after 9:30 p.m. Tuesday evening.
Perhaps most surprising was how much momentum the yellow metal maintained at these levels, as the spot price hardly slowed on its way to $4,050 per ounce by 5:45 a.m., and all the way to the edge of $4,060 per ounce by 12:30 p.m. Wednesday afternoon.
Momentum was flagging noticeably heading into the North American close, however, and the Asian open quickly pushed gold back down to $4,010 by 7:30 p.m. After a second test of this support level, European traders managed to push the spot price back to the edge of Wednesday's all-time high.
But terrible timing resulted in gold dipping just as Thursday's North American open got underway, causing the yellow metal to fall all the way to $4,007 per ounce in under 45 minutes. And after failing to break above $4,025, gold saw its most significant pullback of the week as it slid all the way down to $3,950 by 1:45 p.m. EDT.
But this level would prove to be very firm support, and after a retest at precisely midnight, gold resumed its climb, briefly reclaiming the $4,000 per ounce level at 5:30 a.m., and spiking as high as $4,016 by 11:15 a.m. eastern on Friday.
After one last dip down near $3,982 per ounce, the bulls felt confident enough to push prices $15 back above $4,000, where they traded heading into the weekend.
The latest Kitco News Weekly Gold Survey showed half of Wall Street’s bullish faction switching to neutral on gold after it crossed the $4,000 price threshold, while Main Street investors also pulled back on their bullishness for next week.
“Up,” said Darin Newsom, senior market analyst at Barchart.com. “To quote the rock group KISS (also stands for Keep It Simple Stupid (me, not you)): All Hell’s Breaking Loose.”
“I see gold lower, purely due to the laws of gravity, with gold unlikely to see a ninth consecutive weekly gain,” said Ole Hansen, head of commodity strategy at Saxo Bank. “Overall bullish outlook has not changed, but this market risks running out of energy, unless we get a correction, at which point we will get a better feeling about how much of the latest move is hot air driven by FOMO and how much is real long-term hold demand.”
“Short-term, technical indicators are signaling a possible correction if prices cleanly break below the $3950 support,” said Lukman Otunuga, manager of market analysis at FXTM. “Looking ahead, developments around the government shutdown and a speech by Fed chair Jerome Powell may influence gold’s near-term outlook. Should US political risk remain a key theme, this could push gold back above $4000, with the prospects of lower rates fueling the upside.”
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “You don’t have to look far to see that momentum is firmly on the side of the bulls right now. Just look at today’s recovery from yesterday’s significant bout of profit-taking in both gold and silver. One day later, it’s like nothing ever happened.”
“Fragile peace in the Middle East, renewed drone and missile strikes into Ukraine, the ongoing U.S. government shutdown, weak U.S. dollars, and another interest rate cut coming at the end of the month, and it is obvious where gold is headed,” Checkan added. “Play that broken record😊.”
“Unchanged,” said Adrian Day, president of Adrian Day Asset Management. “We will likely see a little back and forth under $4,000. The Gaza peace deal was the trigger for the pullback, but essentially gold had just moved too far too fast in the last month up to the nice round number.”
“If the US government shutdown ends, that would add weight on the downside,” Day said, “but in my view, not significant or long-lasting, since neither Gaza nor the shutdown was the cause of gold’s rally in the first place.”
Sean Lusk, co-director of commercial hedging at Walsh Trading, was looking at gold’s price action over the recent trading sessions.
“I just think they're looking for any reason to push it higher, and they got one with the continuance to the government shutdown,” Lusk said. “You would've thought it would be a little like what we're seeing in energy markets, where they're just getting slammed here, that the cessation of hostilities in the Middle East for now is perhaps creating some easing, putting some pressure on the market.”
“I don't know,” he added. “This is just insanity in the metals markets.”
Lusk said long is where the flow is going, and buyers don't want to give up control, even though gold is up over 50% on the year.
“With this new threshold here, does it become too rich or cause too much trepidation when you're at $50 in the deferred contracts for silver and above $4,000 for gold?” he asked. “What's going to take even higher? The global stock markets are doing really well, but there's also the feeling out there that we could run a little more here. Central banks may increase their exposure as interest rates come down a little bit.”
“Despite some recent uptick in the dollar, it just hasn't mattered; it hasn't impeded any rally here,” he said. “I thought 40% was going to be a good target where they back off, and that just didn't happen. You got the government shut down at the time. You had tensions ramping up in Eastern Europe, which they still are.”
Lusk said even at these historically overbought levels, gold is getting renewed momentum from the retail market that didn’t exist at previous high-water marks, like in 2011.
“The general public has been piling in,” he said. “How many startup, Robinhood-type firms are there all over the place now, where people can come in and invest with an arcade-style platform and thought process? And what you hear on TV is that gold's going to $5,000, Goldman Sachs is at $4,900, and these other guys are at $4,700. They look at it at $3,900 and say, ‘Gee, if they’re going there, I’ve got to get in long.”
“How long does that last before there's a bad ending here? It very much reminds me of the fear of missing out, whether it be in equities or for home values back before the housing recession, or maybe the stock bubble in the late nineties,” Lusk said. “There are some parallels there.”
“I just think that the trade has changed in a lot of ways: how you trade, who's trading,” he added. “The pandemic did a lot of that, and it's just exacerbated with the amount of these online firms. Cost to entry, getting in, execution-wise, it's very simple. You also have daily option expirations every day of the week that we've never had before. We also have micro contracts. You have these things that you didn't have the last time we made all-time highs in 2011. The game has changed.”
Still, Lusk says experience has taught him to be cautious in these kinds of markets.
“Nothing goes up forever. That's simple mathematical theory,” he said. “It's just a timing game now on when you're going to get a correction. The more knowns you get in the market longer-term, the less unknowns you have, the less of a reason to be up at these lofty levels in gold and silver. I'm salivating here to identify what I think is a near-term top, but I've been wrong. This market was about to turn back over, back down under $3,000, in my opinion, at the end of July.”
This week, 17 analysts participated in the Kitco News Gold Survey, with Wall Street now balanced between bulls and the fence. Eight experts, or 47%, expect to see gold prices rise during the week ahead, while two others, or 12%, predicted a price decline. The remaining seven analysts, representing 41% of the total, expected the yellow metal to trade sideways next week.
Meanwhile, 295 votes were cast in Kitco’s online poll, with Main Street investors’ bullish sentiment beginning to catch up to their professional counterparts. 202 retail traders, or 69%, looked for gold prices to rise higher next week, while another 52, or 18%, predicted the yellow metal would lose ground. The remaining 41 investors, representing 14% of the total, expected prices to consolidate during the week ahead.
The U.S. government shutdown continues, so there will be little in the way of economic data once again next week. Still, markets will pay attention to the latest snapshots of the health of the manufacturing sector from the New York and Philadelphia Federal Reserves, and traders will also be watching any comments that come out of the annual meetings of the International Monetary Fund and the World Bank in Washington next week.
On Tuesday, Fed Chair Jerome Powell will participate in a moderated discussion at the National Association for Business Economics. Then, Wednesday morning will see the release of the Empire State Manufacturing Survey, followed by the Philly Fed Manufacturing Survey on Thursday.
“Gold motored to a new record high near $4060 in the spot market this week,” said Marc Chandler, managing director at Bannockburn Global Forex. “It has consolidated in the past two sessions and found support near $3940. It seems to have taken on a life of its own, decoupling from the US dollar, which also rallied this week, and US yields.”
“However, I note that the correlation with the S&P 500 is positive,” Chandler added. “To me, this suggests it may not be a safe-haven play now as much as a momentum and trend-following play. Sentiment remains bullish, and buying on pullback seems to still be the dominant strategy.”
Adam Button, head of currency strategy at Forexlive.com, told Kitco News that this rally was decades in the making, and it’s likely to last a decade at least.
“Gold bugs have been maligned for much of the last 20 years – or at least 17, 18, since the financial crisis – but this is incredible validation,” he said. “In the last week, financial media is littered with charts comparing the returns on gold to equity indexes and other asset classes. And the conclusion is overwhelmingly in favor of gold.
“If you look at something like gold in yen terms, the returns have been spectacular in U.S. dollar terms, but you flip it to yen, gold crossed 600,000 yen per ounce this week. That's triple since 2021, and it's up 20 times since the millennium. Where do you get 20x in 25 years?”
Button said the real driver of the gold rally is the long-term trend of de-dollarization combined with currency debasement. It's a,
“There's this debasement trade talk everywhere,” he said. “The question is, what's safer, the US dollar or gold? But when you ponder that question in other currencies, the conclusion is overwhelming.”
Under the current circumstances, Button said it’s hard to see $4,000 as truly overbought. “$4,000, I think, is a bull market,” he said. “$10,000 is a bubble. Crossing over $5,000, we may be seeing the start of a bubble. I certainly don't think we're in a bubble now, but all the elements are in place.”
He believes central banks have decided that gold is the way to go, and he expects to see years of steady sovereign accumulation.
“China and Russia came to this conclusion three years ago, at the start of the Ukraine war, that gold is safer,” he said. “There are plenty of global central banks that are loaded up on US dollars, and the process of diversifying takes a decade, minimum. We're two, three years into it.”
Alex Kuptsikevich, senior market analyst at FxPro, believes gold prices can post further gains next week.
“While currencies and shares depended on the actions of presidents and governments, precious metals do not,” he said. “Therefore, political turmoil forces investors to use them as safe-haven assets. The impressive 52% YTD rally in gold started in April with the introduction of tariffs on America's Liberation Day. It continued due to the US government shutdown, the political crisis in France, and the change of leadership in Japan.”
Kuptsikevich said gold’s rise above $4,000 per ounce is the result of more than the weakness of fiat currencies. “There are tectonic shifts in the structure of investment portfolios and fears of financial crises due to government recklessness,” he said. “The share of precious metals is growing both in speculators' assets and in the gold and foreign exchange reserves of central banks. The indicator has already exceeded the share of the euro. According to Eurizon Capital, if it equals the share of the US dollar, the price per ounce will soar to 8,500 dollars.”
Michael Moor, founder of Moor Analytics, believes gold’s price action will likely be skewed to the downside next week.
“DOWN, unless we break back above formation mentioned in last line below under Lower Timeframe,” he said. “In a Higher time frame: I cautioned on 8/16/18 the break above $1,179.7-$1,183. warned of renewed strength. We have seen $2,897.3. On a Medium time frame: The break above 31482 warned of strength for days—we rallied $932.8. The trade above 32214 projects this upward $100 (+)—we rallied $859.6.”
“On a Lower time frame: The trade above 33411 has brought in $739.9 of strength,” Moor said. “The trade above 33850 has brought in $696.0 of strength. The trade above 34186 has brought in $662.4 of strength. The break back above 35640 has brought in $517.0 of strength. The trade above 36658 has brought in $415.2 of strength. The trade above 37143 has brought in $366.7 of strength. The break above 37725 (-7 tics per/hour) has brought in $308.5 of strength. Since we have taken out the 37488-8459 macro exhaustion, we may be headed for the next at 41354-42923. The trade back above 38828 has brought in $198.2 of strength. These are ON HOLD. I warned of pressure likely down into the gap before/if resuming higher trade—we came off $112.6 from the 40705 close. The trade below 40216 (+6.5 tics per/hour) now warns of pressure—we came off $63.7 but decent trade back above where this comes in today at 40381 (+6.5 tics per/hour starting at 12:20 pm EST) will take bull calls OFF HOLD.”
“Decent trade below 39664 (+7.5 tics per/hour) will project this down $70 minimum, $150 (+) maximum,” he added, “but if we break below decently and back above decently, look for decent strength.”
And Kitco senior analyst Jim Wyckoff believes we may see gold prices begin to top out next week. “Sideways, volatile, and choppy,” Wyckoff said. “Bulls may now be close to being exhausted.”
At the time of writing, spot gold last traded at $4,008.57 per ounce for a gain of 0.80% on the day and 3.91% on the week.
