(Kitco News) - The gold market is seeing solid selling pressure heading into the weekend; however, the precious metal is still on track for a significant milestone.
For only the fifth time since the 1970s, gold is expected to post gains for a ninth consecutive week. The last time gold saw a nine-week rally was from early June to early August 2020.
Overnight, gold hit a new intraday record high, pushing to within striking distance of $4,400 an ounce. However, technical selling and profit-taking have picked up during the North American trading session, pushing gold prices nearly $165 below their highs.
Spot gold last traded at $4,252.20 an ounce, down 1.69% on the day. Still, prices are up nearly 6% for the week. Despite the selling pressure, gold’s gains over the last nine weeks have outperformed the comparable rally of five years ago. In this short-term run, gold prices have climbed more than 25%, compared to the 19% rally between June and August 2020.
While gold has maintained strong momentum, some analysts caution that investors should exercise caution at these levels.
“There has never been a 10-week consecutive growth period,” said Alex Kuptsikevich, Chief Market Strategist at FxPro.
In his latest note on gold, Kuptsikevich said the metal is significantly overbought and that he is now bearish. “At the very least, the market needs a technical respite,” he noted.
Phillip Streible, Chief Market Strategist at Blue Line Futures, said investors should expect some volatility at these elevated levels as traders begin to take profits. While gold’s 2% drop on Friday appears dramatic, Streible said it should be viewed in the context of the broader market rally.
“We are going to see some volatility, but the rally in gold makes sense,” he said. “Gold is becoming more relevant as a safe-haven asset as weak economic activity raises the risk of another regional banking crisis. We can see a solid broadening of the market as demand for gold-backed exchange-traded funds (ETFs) continues to grow.”
Robert Minter, Director of ETF Strategy at abrdn, said that although gold is technically overbought, its value remains justified.
“Investors have had a visceral reaction to the loss of purchasing power they’ve experienced over the last five years and have found an outlet for that stress by buying gold,” he said.
Minter noted that the gold market is at an interesting crossroads. He explained that Bank of America’s fund manager survey from September shows that “long gold” is once again one of the most crowded trades in the marketplace.
However, he added that data also show gold represents only 2.4% of total portfolio allocations.
“Assuming fund managers have only a 2.4% allocation to gold, and China’s gold, as a percentage of FX reserves, is 6.7% (compared to 77% for the U.S.), the fundamentals seem fully intact despite the price frenzy,” he said.
Ricardo Evangelista, Senior Analyst at ActivTrades, noted that gold continues to enjoy broad-based fundamental support, including growing safe-haven demand as Congress remains unable to pass new funding legislation, keeping the government closed and heightening fears of slowing economic growth.
Evangelista also said dovish comments from members of the Federal Reserve supporting falling interest rates—including Chair Jerome Powell— will continue to provide a tailwind for the precious metal.
“Against this backdrop, and with speculative trading activity on the rise, the path of least resistance remains to the upside, with any dips likely to be viewed as buying opportunities,” he said.
With the government closed, markets continue to rely on private-sector data. Next week, economists will watch home sales data and preliminary manufacturing numbers. The one exception to the absence of government data will be inflation figures: according to reports, the Bureau of Labor Statistics has called back a limited number of workers to release consumer price data for September.
According to The New York Times, the data is needed to calculate the annual cost-of-living adjustment for Social Security beneficiaries. Under federal law, the Social Security Administration must publish the planned adjustment by Nov. 1.
Economic data to watch:
Thursday: US Existing Home Sales
Friday: US CPI, S&P Flash PMI
