(Kitco News) – Geopolitical tensions and domestic turmoil drove gold prices to record highs this week as volatility returned with a vengeance to precious metals markets.
Spot gold kicked off the week trading at $4,529.89 per ounce, and as news of the Department of Justice lawsuit against the Federal Reserve hit the wires, the yellow metal moved sharply higher, topping out at $4,591.53 by 7:30 p.m. Sunday evening. By 4:00 a.m. Eastern, spot gold was trading just below $4,600 per ounce, and after a brief pullback down to key support near $4,582, U.S. traders would wake up to the news that the Trump administration was attacking the Fed.
The volatility was strong at the outset, with spot gold rocketing through $4,600 at 8:00 a.m. and topping out near $4,616 by 8:45, before dipping sharply back down to $4,586 15 minutes before the equity open, then all the way up to $4,630 by 11:00 a.m.
Gold prices then eased off into the afternoon, but a high trading range had already been established, and gold traded between $4,580 and $4,630 through Tuesday and Wednesday, with a sharp push higher on Wednesday afternoon taking spot gold up to the weekly high of $4,640 per ounce.
Gold then sold off overnight, but support held once again above $4,580 per ounce. Now prices entered a period of consolidation, with gold oscillating in a narrow range between $4,620 and $4,585 per ounce.
Markets saved the last of the week's drama for Friday morning, where another failure to break above $4,620 at 10:00 a.m. saw gold prices fall precipitously all the way to the weekly low of $4,536 per ounce just half an hour later. The bounce back was just as sharp, however, with gold rising to just shy of $4,600 per ounce by 11:30 a.m. before settling into a $20 trading range into the weekend.
The latest Kitco News Weekly Gold Survey showed Wall Street divided on gold’s near-term prospects, while Main Street investors bolstered their bullish majority bias.
“Lower,” said Adam Button, head of currency strategy at Forexlive.com. “Friday's comments about Hassett underscored the stakes for Fed independence, and I believe the stakes are even higher for the Supreme Court decision on tariffs, which I expect to go against the President. Until we get some clarity on tariffs and the Fed Chair, it's best to remain on the sidelines in precious metals.”
“Up,” said Darin Newsom, senior market analyst at Barchart.com. “Newsom’s Market Rule #1: Don’t get crossways with the trend, and the trend(s) in metals, including gold, are still up. As I mentioned last week, based on Newton’s first law of motion applied to markets, these trends won’t change until activity changes, and I don’t see that happening any time soon.”
“Sure, there will be selloffs, vacuums created when buy orders are exhausted, but these moves have uncovered new buying interest after a day or two,” he added. “Again, I see no reason for this pattern to change.”
“The top is likely in on gold and silver,” said Mark Leibovit, publisher of the VR Metals/Resource Letter. “Silver risk to 50-60 zone and gold to 3500. I am in cash.”
Up,” said Adrian Day, president of Adrian Day Asset Management. “The momentum is with gold as investors left on the sidelines decide to join the party. Fundamentally, the factors that have been driving gold remain. Some specifics may ebb and flow, but the trend remains upward for a debt-laden and unstable world.”
“Lower, primarily driven by profit taking in silver,” said Ole Hansen, head of commodity strategy at Saxo Bank, “although we may see some fresh buying of the gold vs silver after the ratio hit 50, almost 30% below the 25-year average.”
That said, Hansen still believes the overall trend remains higher. “Not a change in direction, just a pause,” he said.
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “Gold still has the upper hand. A slight easing of geopolitical tensions led to a pullback this morning, but it already evaporated.”
“Gold is strong. The U.S. dollar is weak,” he added. “Case closed.”
“Up,” said James Stanley, senior market strategist at Forex.com. “We’re seeing a decent pullback ahead of the weekly close, but I still have no reason to go against the trend, so I’m looking at pullbacks or retracements as opportunistic.”
“I think the 4500 level in spot would be an ideal place for buyers to show their hands if we can get profit taking to stretch that far,” Stanley added.
Daniel Pavilonis, senior commodities broker at RJO Futures, said the market is getting jittery at these elevated levels, and he sees risk in both directions in the near term.
“It seems like people are getting a little nervous here,” he said. “I'm seeing a little bit of hesitancy, some profit taking. That's the vibe that I'm getting, so to speak, for over a week, more so in silver, but in the metals across the board.”
“It's profit-taking,” he added. “We're close to the highs… even stocks, everything just seems on edge right now.”
Pavilonis said that he doesn’t believe gold’s run higher this week – and Friday’s subsequent selloff – were primarily about the administration’s lawsuit against Jerome Powell and the Federal Reserve. “I don't know how much it had to do with the Fed,” he said. “I think some of it had to do with Iran. Gold seems to like any kind of issue with Iran.”
“I just think that the market is pretty resilient, where the pullbacks get bought up,” he said. “But I'm starting to see and feel like, on the other side, that there's a little bit of concern that the market's not going straight up every day now. A couple of big sell-offs in silver and then we bounce right back up again. So the volatility is just uncertainty.”
For next week, Pavilonis will be more focused on geopolitical than economic news. “I think really just the Middle East right now, the uncertainty with Iran… is that going to escalate? Is this just a ploy between the U.S. and Israel, to let Iran drop its guard and then we come in over the weekend or something like that?”
He’s also paying close attention to potential developments on the domestic front. “Trump's pick on the next Fed chair is going to be an inflationary, ‘run-it-hot’ economy guy,” he said. “Also, the tariffs, everybody's waiting on that too. How is that going to play out if we have to pay back the tariffs? Is that inflationary? Is that actually good for the markets? I don't know. And the whole Greenland thing, how does that play into this?”
“Buying insurance on this stuff, because it's so high, I don't think it's a bad idea,” he added. “We could see a quick drop and still be in a pretty bullish market, so some cheap, 20% out of the money, a couple of months out options. I don't think that's a bad play.”
“But staying long the metals, for sure.”
This week, 16 analysts participated in the Kitco News Gold Survey, with only half of Wall Street retaining a bullish outlook on gold’s near-term prospects. Eight experts, or 50%, expect to see gold prices rise higher during the week ahead, while four others, representing 25%, predicted a price decline. The remaining four analysts, another 25%, expected the yellow metal to continue its consolidation next week.
Meanwhile, 247 votes were cast in Kitco’s online poll, with Main Street investors growing only more bullish after this week’s new highs. 192 retail traders, or 78%, looked for gold prices to rise higher next week, while another 27, or 11%, predicted the yellow metal would lose ground. The remaining 28investors, representing 11% of the total, expected prices to trade sideways during the week ahead.
Next week's economic news calendar features key inflation and growth data, but markets will likely continue to take their cues from geopolitical developments.
U.S. markets will be closed on Monday for Martin Luther King Jr. Day, while across the pond, the World Economic Forum kicks off in Davos, Switzerland, and on Tuesday, markets will receive U.S. weekly ADP Employment figures.
Then Wednesday will see the release of Pending Home Sales for December, and U.S. President Donald Trump will speak at the WEF.
U.S. Final Q3 GDP, PCE inflation for October and November, and weekly jobless claims will come out Thursday morning, and the week wraps up with the Friday release of S&P Flash Manufacturing and Services PMIs for January, along with the final University of Michigan Consumer Sentiment.
“Gold is consolidating,” said Marc Chandler, managing director at Bannockburn Global Forex. “I do not think the bull move is over, but it looks like the consolidation could see losses toward $4550 or so. Outside of the flash PMI and the BOJ meeting, the economic calendar is quiet next week, which may be conducive for continued consolidation. A convincing push above 4.20% in the US 10-year yield may also weigh on the yellow metal.”
Alex Kuptsikevich, senior market analyst at FxPro, told Kitco News that he sees gold prices trending lower next week.
“The White House dealt a blow to gold by postponing tariffs on critical minerals,” he said. “Although precious metals were not on the list, other assets in the sector were. Concerns about import duties played a key role in the rally in silver, platinum and palladium. However, the overflow of bullion in the US occurred at the initial stage of the rally. Subsequently, other factors came into play.
Kuptsikevich said that gold's position looks strong due to extremely unpredictable geopolitics and continuing tensions. “The increasing polarisation of the world is forcing central banks to continue the processes of de-dollarisation and diversification of reserves,” he said. “Although central banks remain net buyers, their purchase volumes are declining amid more than 130% price growth over the past two years of rallying to historic highs.”
He said FxPro is also paying close attention to reports of a huge volume of short exchange positions held by active funds.
“At current prices and dynamics, especially in silver, an explosion of volatility could occur at any moment,” he warned. “This could be either the start of a sharp downward movement or a final short squeeze with growth to non-market levels, which could ultimately remove buyers from the market.”
Michael Moor, founder of Moor Analytics, believes gold prices will move higher 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 $3,466.8. The break above 31482 brought in $1,231.9 of strength. The trade above 32214 brought in $1,429.1 of strength. The trade above 32236 brought in $1,426.9 of strength. The trade above 32392 projected this up $115 (+)—we attained $1,411.3. The trade above 33411 brought in $1,309.4 of strength. The trade above 33850 brought in $1,265.5 of strength. The trade above 34186 brought in $1,231.9 of strength. The break above 35640 brought in $1,086.5 of strength. The trade above 36658 brought in $984.7 of strength. The trade above 37143 brought in $936.2 of strength. The break above 37725 brought in $878.0 of strength. The trade above 38828 brought in $767.7 of strength. On a lower timeframe basis: The trade above 39732 brought in $677.3 of strength. The trade above 40701 brought in $580.4. The trade above 41738 brought in $476.7. On 11/5 we also left a medium bullish reversal. The trade above 42758 brought in $374.7.”
“NOTE: I warned we are likely in the last stretch of triple timeframes from the move up from 16183, 39013, and 32843 with possible exhaustion at 46431-700, 47050-62, and higher, and that minimum targets on the downside if the 46505 high held were 45531 for the lower timeframe, 43512 for the medium, and lower for the higher timeframe—we rolled over from 46505 high for $111.4, taking out the lower timeframe target of 45531,” Moor added. “The trade back above 45678 (+10 per/hour) now warns of renewed strength; but if we fail back below decently, look for pressure to resume. A 'decent' penetration today is $21.5.”
And Kitco senior analyst Jim Wyckoff said gold and silver market bulls enjoyed another good trading week, with both metals hitting new all-time highs.
“Now, heading into a three-day U.S. holiday weekend, the shorter-term futures traders are ringing the cash register and taking some profits,” he said. “Also, late this week has seen risk aversion in the general marketplace downtick.”
“Technically, February gold futures bulls’ next upside price objective is to produce a close above solid resistance at $4,750.00,” Wyckoff said. The Bears' next near-term downside price objective is pushing futures prices below solid technical support at $4,400.00. First resistance is seen at the record high of $4,650.50 and then at $4,675.00. First support is seen at Thursday’s low of $4,584.50 and then at $4,550.00.”
At the time of writing, spot gold last traded at $4,584.41 per ounce for a gain of 2.40% on the week but a loss of 0.69% on the day.
