(Kitco News) – In the absence of any U.S. data to influence market participants, gold marched inexorably higher day by day this week, driven by a steady stream of tariff and trade anxiety, before a sudden Friday reversal shocked newcomers right out of the market.
Spot gold kicked off the week trading at $4,022.44, and this is one case where the chart really does tell the story: The yellow metal was already breaking above $4,100 before noon on Monday, before shooting through $4,200 just ahead of the market close on Wednesday, taking out the $4,300 per ounce level 15 minutes before the North American close on Thursday, and ultimately topping out less than $20 shy of a once-unthinkable $4,400 per ounce around 1:00 a.m. EDT early Friday morning.
And while gold's unprecedented price climb was exhilarating, all of the week's drama was concentrated into Friday’s trading sessions. The Asian open saw the yellow metal rocket from $4,315 per ounce all the way to $4,368 just 15 minutes later. A triple top had formed by 8:30 p.m., which saw gold fall precipitously to $4,290 per ounce just one hour later. Still, the bulls were not yet discouraged, and by midnight, spot gold had set a fresh all-time high of $4,370 per ounce.
After one final push took the spot price to the eventual weekly and all-time high of $4,380.99, the bulls were finally exhausted. Gold then embarked on its dramatic decline, falling to $4,334 by 4:00 a.m. Eastern, down to $4,287 by 7:45 a.m., and all the way to $4,217 per ounce half an hour after the North American open.
After twice failing to reclaim the $4,260 per ounce level by 11:30 a.m., gold slid to its eventual daily low of $4,185.91 just after 1:15 p.m. Eastern.
At this level, buyers returned to push prices moderately higher, and spot gold was trading near $4,240 per ounce heading into the weekend.
The latest Kitco News Weekly Gold Survey showed Wall Street sentiment more polarized after gold’s momentous gains and sharp near-term retracement, while Main Street investor attitudes held relatively steady ahead of next week.
“I am Neutral on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “Gold has had a great run and may be due for a pause. Silver and Platinum are having corrections today, which suggests upward momentum for precious metals may be slowing.”
“Up,” said Darin Newsom, senior market analyst at Barchart.com. “As of Friday morning, the US is still closer to autocracy than democracy. The rest of the world recognizes this and continues to buy gold.”
“Lower,” said Adam Button, head of currency strategy at Forexlive.com. “I'd love to see a correction to $4000. It's been a one-way rally for the ages, and some kind of real retracement would build a healthier base for a test of $5000.”
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “I am actually encouraged to see a bit of a sell-off here this morning, but the trend is still unmistakably higher. U.S. dollar weakness, fully anticipated interest rate cuts, and government dysfunction in the U.S. all point to higher gold prices.”
“Unchanged,” said Adrian Day, president of Adrian Day Asset Management. “We could expect some back and forth after the dramatic rallies of the past week and month. I am not expecting any dramatic sell-off, whether in terms of price or time, since the main drivers of gold buying over the past three years remain firmly intact. But a short pause and regroup would not be untoward and would not disrupt the long-term picture.”
“Up,” said James Stanley, senior market strategist at Forex.com. “There’s a very decent pullback showing on Friday ahead of the close, and I think that’ll wash out a lot of profit taking, but I’m looking for support in a pullback to show up at some point early next week.”
“The trend has been so aggressively bullish that I think the only doubt at this point is just how quickly it’s all come on,” Stanley added. “So, still bullish until evidence presents that a larger reversal is at play.”
Bob Haberkorn, senior commodities broker at RJO Futures, told Kitco News Friday’s gold selloff was actually a silver selloff that spilled over into the gold market.
“I think it's weak hands, paper hands being shaken out of this market right now,” he said. “It started in silver. Gold was positive, and was looking pretty good, but the silver margins increasing like they did on the CME and the Shanghai Exchange started the selloff in silver, and I just think it's dragging gold with it.”
“Nothing's changed fundamentally in this market other than the fact that margins have increased,” he added.
That said, Haberkorn believes the reaction to the recent margin changes shows that this rally is different from other recent bull markets.
“When they raise margins as much as they have over the course of the last two, three weeks – and there's nothing wrong with raising margins as the price goes up; with volatility, the exchange does have to protect itself – but usually you'll get a few days of pullbacks when margins go up as much as they have. These dips have been getting bought up fairly quickly; this is the biggest one we've seen so far.”
“It'll be interesting this afternoon to see how it shakes out with the physical demand like it is,” he added. “The spot price is still about $2 higher than the front month. The CME market needs to be careful with the fact that spot is so high and futures are low. How many people will stand for delivery? If it gets too low here, I could see large orders coming in for delivery on it, and I know supplies are low in London; Shanghai's gotten low. At the exchange level, that's something that's a concern here, but fundamentally, nothing's really changed.”
Haberkorn said that people who trade commodity futures have long memories, and this rally just feels different.
“The difference is that this whole rally started with central banks buying,” he noted. “Central banks aren't buying gold to hold it short-term. They're not getting out of it today because it's down $45. If anything. I think that this will be an opportunity for people to add. And they have been adding on our end; we have had a lot of people add it.”
Even with Friday’s selloff in full swing, Haberkorn doesn’t expect any sustained selling pressure to carry into next week.
“I think we will be continuing next week higher,” he said. “There are people that are in this that wanted to add, there's people that aren't in this that want to add. It's all over the news at this point. I think there's a lot of money on the sideline, and there's probably buying going on today with people outside of the futures markets that have no idea it's down this much today. And they're still going to buy.”
Haberkorn said his next price target is $4,500 per ounce. “I think $4,500 is where we're headed,” he said. “The silver and gold trade right now is a battle, and for the bulls, everything’s gone right. Every level, we've gone right through. It's gone up so hard, so much, so fast.”
“I don't think the move today is a rally killer at all,” he added. “It's more of an opportunity to add additional positions. I don't think it's going to change the trajectory of this rally.”
“Central banks, they're not buying gold to get out of it quickly,” Haberkorn said. “This is a longer-term hold for them. If this was a rally like 2011, or even 2008, that started off with retail buying and speculation, sure, that type of investor might not be in it for the long term and would get out on a move like today. But those people are just coming into the market now. There's a good base in metals right now due to how this rally started.”
This week, 15 analysts participated in the Kitco News Gold Survey, with Wall Street dialing back its bullish bets somewhat. Nine experts, or 60%, expect to see gold prices rise during the week ahead, while four others, or 27%, predicted a price decline. The remaining two analysts, representing 13% of the total, expected the yellow metal to trade sideways next week.
Meanwhile, 265 votes were cast in Kitco’s online poll, with Main Street investors’ bullish sentiment holding steady amid gold’s volatile performance. 180 retail traders, or 68%, looked for gold prices to rise higher next week, while another 48, or 18%, predicted the yellow metal would lose ground. The remaining 37 investors, representing 14% of the total, expected prices to consolidate during the week ahead.
With the Federal government still shuttered in the United States, markets are having to make do with private-sector data, which will include home sales numbers and manufacturing data next week. Markets will, however, receive some official inflation figures, as the Bureau of Labor Statistics has called back a limited number of workers to release the CPI report for September so the government can calculate the annual cost-of-living adjustment for Social Security beneficiaries before Nov. 1.
On Thursday, markets will receive existing home sales for September, and on Friday, the September CPI report is scheduled for release, followed by S&P Flash PMI.
“Gold reached almost $4380 basis the spot market today,” said Marc Chandler, managing director at Bannockburn Global Forex. “It is not just about central bank buying, but momentum and trend followers have jumped aboard.”
Chandler also noted that U.S. rates have softened this week. “The US two-year yield is at a three-year low and the 10-year yield is at a 6-month low, and the dollar (DXY) is having its worst week since early August,” he said. “While there is much in flux on the global stage, gold is not just a safe haven, but it also has some of the characteristics of a risk-trade.”
Kevin Grady, president of Phoenix Futures and Options, said that while some of gold’s momentum appears unsustainable, the strong hands are still underneath this market and buying the dips.
“We saw last month that the investment trade is starting to come in,” he noted. “The GLD was up 880% year over year last month. That's unsustainable.”
“Look, you're going to see $5,000 gold,” he said. “It may pull back, but even if it pulls back to $4,000, it’s a small percentage move.”
Grady said it’s important to look at which market participants are looking to sell gold.
“When you look at the energy markets, you say, ‘Okay, when crude gets up to $90 a barrel, the producers are going to come in and hedge,” he said. “The producers are not going to come in and hedge on gold. They're not going to be the ones who stop this rally. I think that these guys are enjoying their share price, they've listened to their shareholders, and I think that gold's going to have some legs.”
As for the possible timing of gold’s break above $5,000 per ounce, Grady admitted it was difficult to predict.
“It could be next week,” he said. “Not really, but look, they're trying to push it. What's happening now is that you're seeing the investment sector come in and invest. I think a lot of people, when you're looking at a 50% move when the S&P is up 12% this year, I think it's attracting people, and it's got legs.”
Grady said gold is really buzzing at the retail level right now. “A lot of people are talking about the story,” he said. “I've gotten more phone calls this week than I have in a very long time, from friends, clients, people reaching out. It's starting to go back to the mainstream again. And I think a lot of people are using the GLD as an investment strategy in mutual funds, things like that. So it could very tough to put a timeline on it, because we really haven't seen a pullback.”
“With everything going on right now in the world, people trying to decouple from the dollar… I think the depreciating dollar is also giving some wind in it,” he said. “Things are just ripe for a rally.”
Grady said the one thing that could take the wind out of gold’s sails would be a breakthrough in the Russia-Ukraine conflict.
“Right now, it's the only thing,” he said. “We're keeping an eye on the interest rate picture; we'll be seeing another cut later this month. We'll watch the economic data. The only thing I could see right now is some sort of reconciliation in the war in Ukraine.”
Alex Kuptsikevich, senior market analyst at FxPro, believes that after over two months straight of weekly gains, gold prices will finally decline next week.
“Gold's rally to record highs above $4,200 per ounce resulted from a debasement trade,” he said. “Governments cannot cope with budget deficits, are accumulating debt and demanding that central banks cut interest rates, as in the US, or keep them low, as in Japan. As a result, investors are losing confidence in government bonds and currencies. They are looking for alternatives and turning their attention to precious metals. As a result, gold has been gaining for the last nine weeks, which is the fifth time in the history of free currency conversion since the 1970s.”
“However, there has never been a 10-week consecutive growth period,” Kuptsikevich warned. “The excessiveness of the rally is also shown by the gap from the 200-week moving average. The spot price at its peak exceeded this line by 90%. There has only been one larger gap once before, in 1980. At the very least, the market needs a technical respite. But historically, its beginning could be the start of a major multi-year reversal.:”
“Now, we are on the side of the bears,” he added, “but at the same time, we understand that the bulls simply have no choice but to push the price further up, as stopping would ruin the whole game.”
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 the 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 $3,208.3. On a Medium time frame: The break above 3,148.2 warned of strength for days—we rallied $1,087.6. The trade above 3,221.4 projects this upward $100 (+)—we rallied $1,014.4. The trade above 3,223.6 warned of renewed strength—we rallied $1,012.2. The trade above 3,239.2 projected this up 115 (+)—we attained $996.6.”
“On a Lower time frame: The trade above 3,341.1 has brought in $1,050.9 of strength,” Moor said. “The trade above 3,385.0 has brought in $1,007.0 of strength. The trade above 3,418.6 has brought in $973.4 of strength. The break back above 3,564.0 has brought in $828.0 of strength. The trade above 3,665.8 has brought in $726.2 of strength. The trade above 3,714.3 has brought in $677.7 of strength. The break above 3,772.5 (-7 tics per/hour) has brought in $619.5 of strength. The trade back above 3,882.8 brought in $509.2 of strength. All of the above are ON HOLD.”
“The break below 4,270.6 (+9 tics per/hour) now warns of decent pressure,” Moor added. “Decent trade back above where this comes in at 4,273.2 (+9 tics per/hour starting at 12:20pm) will take bull calls OFF HOLD. Decent trade below 4,0796-711 (+8 tics per/hour) will project this down $335 (+); but if we break below here decently and back above decently, look for decent short covering.”
And Kitco senior analyst Jim Wyckoff expects gold prices to trend downward next week. “Steady-lower,” he said. “Market is due for a downside technical correction after recent strong gains.”
At the time of writing, spot gold last traded at $4,231.98 per ounce for a gain of 6.40% on the week but a loss of 2.20% on the day.
