(Kitco News) - This week could present a strategic buying opportunity for gold investors, even as the price trades comfortably near $4,100 an ounce, according to one market strategist.
In an interview with Kitco News, Kathy Lien, Director of Proptraderedge.com, said that gold has been fairly resilient in recent weeks as it builds a floor at $4,000 an ounce. However, she added that momentum has clearly slowed, and the precious metal could be sensitive to better-than-expected economic data.
Lien added that within the next three months, she could see gold prices trading lower and potentially testing support around $3,500 an ounce.
“On a zero-to-three-month basis, the best way to describe gold is that it is a crowded trade,” she said. “If there is an excuse, a reason for the speculators to bail, then we could see a deep correction.”
Lien said that the biggest excuse speculative momentum traders have to liquidate their gold holdings could come from the Federal Reserve.
She pointed out that gold’s bullish momentum started to slow as interest-rate expectations began to shift. After cutting interest rates earlier this month, Federal Reserve Chair Jerome Powell said that a December rate cut was not a foregone conclusion.
Currently, the CME FedWatch Tool shows markets pricing in a 79% chance of easing next month; however, many economists think a December rate cut is now a 50/50 coin flip.
With so much uncertainty and growing pessimism, Lien said that any positive economic data could further reinforce a pause from the Federal Reserve, which would support the U.S. dollar’s new momentum.
“ The dollar index is above the 200-(Simple Moving Average), pretty much for the first time since February. This is a pretty significant technical move, and if we see a new leg higher in the dollar, that could end up hurting gold,” she said.
Lien said that she will be paying close attention to inflation data.
“ Inflation has been pretty sticky and I think the degree of inflation we will see could end up surprising many people,” she said. “If it does, the possibility of the Fed actually being done with cutting interest rates poses a serious downside risk.”
She added that she will also be paying close attention to preliminary holiday shopping numbers. This Friday is the biggest shopping day of the entire year and will be an important barometer to gauge the health of the consumer.
“Gold has been supported by a lot of negative newsflow and I just don’t think investors are positioned for any positive news,” she said. “ If holiday shopping is really good, that would reinforce the sentiment that the U.S. economy is not deteriorating as rapidly as everyone thinks.”
Data from the National Retail Federation shows that more than 187 million people are expected to shop over the Thanksgiving long weekend, up from 183 million last year. At the same time, the NRF expects consumers to spend a trillion dollars this holiday season, rising between 3.7% and 4.2% over 2024.
“Consumers are budgeting an average $890 for gifts and other seasonal items like decorations, cards, food and candy,” the NRF said in a report.
However, according to a Deloitte survey published Monday, consumers plan to spend an average of $622 between Nov. 27 and Dec. 1 – down 4% from last year.
While gold will be sensitive to positive economic data, Lien said that there is also another risk to consider. She explained that as investment demand has grown, many investors have not experienced a major bear market.
“What I fear is that investors haven’t seen a bear market in gold, and when we see a correction, we’re going to see widespread liquidation and choppiness. It’s going to be messy,” she said. “When we have seen a correction in gold, they're always deeper and faster than you anticipate.”
Although Lien is bearish on gold in the near term, she said that the precious metal’s long-term bullish potential remains firmly entrenched. Even if the Federal Reserve pauses its current easing cycle, Lien said it is in no position to raise interest rates anytime soon.
She added that a 15% correction in gold would likely attract significant buying interest from investors and central banks that continue to diversify their official holdings away from the U.S. dollar.
“Even if gold prices come down to $3,300, which is probably like a 17%, 18% drop in gold, it hasn't broken any major prior support levels from the start of the year,” she said.
