(Kitco News) - Despite solid profit-taking ahead of the weekend, the gold market is poised to end the week in positive territory and establish new support at $4,000 an ounce.
Gold’s failed attempt to break above $4,200 per ounce this week has created some short-term bearish sentiment. According to the latest Kitco News Weekly Gold Survey, there is no significant consensus among Wall Street analysts regarding next week’s price action; however, many continue to view lower prices as a tactical buying opportunity. Meanwhile, Main Street investors remain solidly bullish on the precious metal.
“There is uncertainty about the U.S. economy, tariffs, and the next interest rate move. Gold may need to retest the recent lows ($3930 area) before a convincing recovery. Any pullback is likely to be brief and shallow as the main drivers of gold remain in place,” said Adrian Day, President of Adrian Day Asset Management.
Wall Street’s cautious sentiment comes after gold was able to hold key support at $4,000 an ounce on Friday, generating solid buying momentum through the first half of the week. On Thursday, spot gold reached a high of $4,245 an ounce before being hit with significant selling pressure.
Spot gold last traded at $4,080 an ounce, up 2% on the week; however, prices are down more than 3% from Thursday’s intraday high.
“Bulls have quickly run out of gas and the near-term technical charts have deteriorated a bit,” said Jim Wyckoff, Senior Market Analyst at Kitco.com. He added that he is looking for lower prices next week.
According to some analysts, gold sold off as shifting interest rate expectations triggered a broader market pullback, with Bitcoin and equities also losing ground. Although the 43-day U.S. government shutdown has ended, some economists worry that economic data collection has been severely impacted. A lack of quality data is forcing the Federal Reserve to take a neutral stance on monetary policy, potentially leaving interest rates unchanged next month.
According to the CME FedWatch Tool, markets see less than a 50% chance of a rate cut in December; last month, markets saw more than a 90% chance of easing.
“The weakness of the US dollar and rumours of the Fed resuming asset purchases have been catalysts for gold's rise since the beginning of the week, but Thursday and Friday clearly showed that this is no longer a one-way street,” said Alex Kuptsikevich, Senior Market Analyst at FxPros.
Kuptsikevich is bearish on gold next week and also sees growing potential for investors to sell into rallies.
“Since the end of last month, gold has been selling off heavily after its rise, which appears to be an attempt by bears to demonstrate that they have broken the bulls' back. Gold, like other risky assets, was undermined at the end of the week by a sharp decline in the chances of a Fed rate cut in December. If FOMC members really nudge the market in this direction, the dollar is doomed to rise and gold to fall,” he said. “However, we still see higher risks that the data coming out of the US will show a sharp deterioration in the economic landscape. In this case, we should expect the dollar to rise and a flight from risk, but in such cases, gold soars in the early stages only to fall off a cliff later on.”
This week, 17 Wall Street analysts participated in the Kitco News Gold Survey. Among the participants, eight analysts, or 47%, were bearish on gold in the near term. At the same time, six analysts, or 35%, were neutral for next week, while three analysts, or 18%, saw prices moving higher.
Meanwhile, 230 votes were cast in the online social media poll. Of these, 151 respondents, or 65.7%, expected gold to rise next week. Another 38 respondents, or 16.5%, anticipated lower prices, while 41 voters, or 17.8%, were neutral in the near term.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, said he is bullish on gold next week unless equity markets see a significant selloff. The S&P 500 saw solid selling pressure this week but has managed to hold key support above 6,600 points.
In a potential equity-market rout, Hansen said, “no asset, apart from the JPY, will be exempt from short-term selling pressures.”
James Stanley, Senior Market Strategist at Forex.com, said he is bullish on gold but is not expecting a breakout just yet.
“I think we’re in for a round of consolidation very similar to the final two months of last year or the four months from April of this year, which led to Powell’s speech at Jackson Hole and ultimately another parabolic trend. I still favor the long side as I don’t think much in the fundamental backdrop has changed. I think what we’re seeing now is profit taking after a really strong run,” he said. “That said, I think this denotes some necessary adjustments to strategy, namely, aggression at support and caution near resistance because, as we saw this week, those tests can lead to longer-term bulls taking profits and that can provide a fast sell-off from near-term highs. So 4k is still a major spot for me, and it’s not until we get a confirmed break of 3895 that I’m going to back off on the theme.”
Meanwhile, Michael Moor, Principal at MoorAnalytics.com, said he is bearish on gold next week.
“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 $3,214.3. This is ON HOLD. On a Medium time frame: The break above 31482 warned of strength for days—we rallied $1,249.8. The trade above 32214 projects this upward $100 (+)—we rallied $1,176.6. The trade above 32236 warned of renewed strength—we rallied $1,174.4. The trade above 32392 projected this up 115 (+)—we attained $1,158.8. The trade above 33411 has brought in $1,056.9 of strength. The trade above 33850 has brought in $1,013.0 of strength. The trade above 34186 has brought in $979.4 of strength. The break back above 35640 has brought in $834.0 of strength. The trade above 36658 has brought in $732.2 of strength. The trade above 37143 has brought in $683.7 of strength. The break above 37725 has brought in $625.5 of strength. The trade back above 38828 brought in $515.2 of strength. These are ON HOLD. On a Lower time frame: These are ON HOLD. I warned the trade back below 43896-920 would likely bring in pressure—we have come off $488.3. This is OFF HOLD. The trade above 39732 (+3.5 tics per/hour) has brought in $276.8 of strength. This is ON HOLD. The trade below 41556 (+8 tics per/hour at 7:00 am) now warns of pressure—we have come off $123.0. Decent trade below 40455 (+3.7 per/hour starting at 11:20 am) will warn of continued pressure.”
