(Kitco News) - Gold continues to hold solid support above $4,000 an ounce, but downside risks are growing as the price appears unable to sustain gains above initial resistance at $4,100 an ounce.
For most of the year, as gold prices have rallied more than 55%, the precious metal has paid little attention to elevated bond yields and resilient U.S. dollar strength. However, analysts warn that the correlation is back in focus, as there is no clear consensus on the interest rate path ahead of the Federal Reserve’s final monetary policy meeting of 2025.
According to the CME FedWatch Tool, markets see more than a 69% chance of a rate cut next month; however, economists view the final decision as a 50/50 call. In this environment, analysts warn that economic data will play an increasingly important role in the coming weeks.
In an interview with Kitco News, Kathy Lien, Director of Proptraderedge.com, said that a lot of bad news has already been priced into the economy, so any data that comes in better than expected could put pressure on gold.
“In the short-term, between now and three months, gold is a crowded trade,” she said. “Any positive news flow next week will be a risk for gold.”
Lien said she will specifically be watching initial sales data during the Thanksgiving long weekend. She explained that any data showing the consumer is still in good shape could prompt the Federal Reserve to keep interest rates unchanged in December.
Barbara Lambrecht, Commodity Analyst at Commerzbank, is also neutral on gold as the market is expected to take its cue from the Federal Reserve.
“Only a resurgence of interest rate hopes could give a boost to gold prices,” Lambrecht said. “It is not over yet: The meeting is scheduled for December 9–10, and one or two additional data points could still (retrospectively) be released in the meantime. Nonetheless, if rate-cut expectations do not increase again, the gold price is likely to remain stagnant.”
Commodity analysts at TD Securities said they expect investment demand to remain stagnant until the Federal Reserve lays out a clearer path.
“Since, prices have consolidated, but have refused to break lower. Official sector buying, while likely slowing, remains an important anchor for gold markets after all. Still, it cannot lead to the explosive gains observed over the last months,” the analysts said. “Retail participants have historically displayed a notable sensitivity to the Fed outlook. Could a more prolonged pause be the catalyst required for larger-scale outflows to commence in precious metals?”
Lukman Otunuga, Senior Market Analyst at FXTM, said he sees gold caught in a narrow range next week.
“The incoming retail sales and PPI reports, along with other data next week, may provide fresh insight into the health of the US economy. Should US data disappoint, this may rekindle Fed cut bets – potentially pushing gold back above $4100,” he said. “However, if strong data continues to shave these odds, gold could breach key support at $4000, opening the doors toward $3970 and $3930.”
Beyond U.S. economic data, some analysts have said that the breakdown in Bitcoin could provide new momentum for gold. The digital currency has dropped more than 10% this week, testing support near $80,000 per token. Bitcoin last traded at $84,221 per token.
Bitcoin has fallen more than 30% since hitting an all-time high above $126,000 per token.
“Gold has proven its worth, even compared to other perceived stores of value like cryptocurrencies, given weakness in bitcoin, and we think gold's appeal is strong and without peers in this environment,” said Chris Louney, Director of Gold Strategy and Global Research at RBC Capital Markets.
Louney added that despite some near-term uncertainty, gold’s ability to hold critical support above $4,000 an ounce should be seen as a strong bullish signal.
“I view the stabilization above $4000/oz amid shifting levels of uncertainty as a positive sign, particularly post US government shutdown and return of data. I think this points to ongoing interest in gold, and think longer-term interest remains the key underpinning factor and an important reason why gold still has potential upside going into next year,” he said.
Economic data to watch next week:
Tuesday: US PPI, Core Retail Sales, US Pending Home Sales
Wednesday: US Durable Goods Orders, Preliminary Q3 GDP, US Personal Consumption Expenditures
Thursday: US markets are closed for Thanksgiving
