(Kitco News) - Despite continued selling pressure, gold appears to be getting comfortable around the $4,000-per-ounce level as markets wait for more clarity surrounding U.S. monetary policy.
Midweek, the Federal Reserve cut interest rates by 25 basis points, meeting market expectations. However, Federal Reserve Chair Jerome Powell created some doubt regarding the path of the central bank’s renewed easing cycle, saying that a third consecutive rate cut in December was not a foregone conclusion.
Ahead of Wednesday’s rate cut, markets were pricing in a 90% chance of a rate cut; expectations have now dropped to 63%. The surprisingly hawkish comments kept gold prices near their weekly lows, around $3,900 an ounce.
At the same time, easing trade tensions between China and the U.S. could dull gold’s luster as a safe-haven asset.
While gold has managed to push back to $4,000 an ounce, analysts have said it currently lacks enough momentum to break resistance levels. Gold last traded at $3,988.10 an ounce, down nearly 1% on the day.
Philip Streible, Chief Market Strategist at Blue Line Futures, said gold has room to move higher in the near term; however, he added that prices need to push above $4,175 an ounce to regain bullish momentum.
“The limited data next week could show further weakness in the labor market, so I expect, despite what Powell said, the Fed will have to continue cutting rates,” he said. “Weak data should provide a decent tailwind for gold. Prices have had their correction and are now looking to find their way back up.”
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that despite the selling pressure, gold’s long-term potential remains intact. However, he expects prices to continue consolidating.
“Considering the last consolidation period lasted four months, a return to a record high before year-end would be truly remarkable,” he said. “Powell, just like everyone else, is flying blind, so he is urging a bit of caution. The U.S.-China trade deal was a nothing burger, solving none of the major issues. So with that in mind, I think patience is the focus for now. That said, a weekly close above $4,000 looks pretty good and may help improve the tone next week.”
Aaron Hill, Chief Markets Analyst at FP Markets, said he expects to see choppy trading conditions as the market tries to find a balance between conflicting factors.
“Gold’s holding steady around $4,000 because the Fed’s 'maybe no December cut’ and the U.S.-China tariff truce are both pulling the rug out from under safe-haven buying, while a jittery VIX at 16+ keeps diversification money trickling in,” he said. “I’m still bullish longer term; central bank buying and portfolio hedging will win out, so dips below $3,950 are buys.”
Lukman Otunuga, Senior Market Analyst at FXTM, said that although gold continues to tread water in the near term, U.S. geopolitical uncertainty — as the government remains unable to pass new funding legislation — could provide some safe-haven support for gold.
“Talking technicals, prices are down roughly 8% from the all-time high, but still ending the month 4% higher,” Otunuga said. “Gold remains pulled and tugged by conflicting fundamental forces, but prices are bearish on the daily charts. Resistance can be found at $4,050 and support at $4,000. A break either up or down may determine the trend for the coming weeks.”
If the government does not reopen next week, it would mark the longest shutdown on record. Some analysts have said the shutdown, which has stretched on for an entire month, could start to impact economic activity.
If the government is unable to pass new funding legislation by Saturday, funding will lapse for the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, impacting one in eight Americans.
Last week, LegalShield, a legal services company that provides Americans with access to legal advice, counsel, protection, and representation, said its Consumer Stress Legal Index (CSLI) shows that consumer stress has risen to its highest level in five years as Americans struggle to pay their bills.
Although consumer stress has been rising, many economists have said that the relative strength in the labor market remains a key support for the economy. Although government employment data is not expected to be released next week, markets will still receive private-sector employment numbers from payroll processor ADP.
The Institute for Supply Management (ISM) will also release its Purchasing Managers’ Indexes for the manufacturing and services sectors next week, which will provide some data on economic activity and inflation risks.
The University of Michigan will also release its preliminary Consumer Sentiment survey, which will offer insights into consumption and inflation expectations.
Economic data to watch next week:
Monday: ISM Manufacturing PMI
Wednesday: ADP Employment, ISM Manufacturing Survey
Thursday: Bank of England monetary policy meeting
Friday: University of Michigan Preliminary Consumer Sentiment
