(Kitco News) – The gold market began in the doldrums and built steady momentum throughout a shortened trading week amid growing optimism for an Iran breakthrough, only to see those hopes dashed with a belligerent Wednesday evening presidential address that erased more than half of the precious metal’s gains, but still saw gold deliver its second straight positive weekly performance.
Spot gold kicked off the week trading at exactly $4,400 per ounce, and after a quick dip down to $4,375, gold began its steady if volatile climb. Half an hour after the North American equity open, spot gold was trading at $4,460 per ounce and shortly before noon, it was above $4,530.
The yellow metal saw a sharp dip down to retest support near $4,420 per ounce early in the Asian session, but by 2:30 a.m. on Tuesday morning, gold had set a fresh weekly high of $4,540 per ounce, rising to $4,573 per ounce by 8:30 a.m.
Once again, the Asian session began with subdued sentiment, but the yellow metal then rocketed $100 higher in an hour, topping out at $4,624 per ounce just after 9:30 p.m. After a pullback during the European session, the North American trading day started strong, with gold breaking through the weekly high near $4,620 and climbing steadily into the equity close near $4,685.
Asian traders picked up where North America left off this time, and by 8:15 p.m. on Tuesday evening, gold had broken through $4,700 per ounce.
Momentum then built throughout Wednesday trading as rumors swirled that President Trump was likely to make a positive announcement on the Iran war. Spot gold topped out at $4,800 per ounce ahead of the president's comments, but those hopes were quickly dashed, as Trump's threats against Iran's civilian and oil infrastructure saw gold tumble over $100 in 20 minutes, with the yellow metal falling back below $4,600 by 2:00 a.m. Eastern.
From there, gold staged a modest but steady recovery, getting to the edge of $4,700 by 10:30 a.m. Eastern, and finishing the shortened week about $20 shy of that level.
The latest Kitco News Weekly Gold Survey showed Wall Street fleeing for the fence amid the administration’s mixed Iran signals, while Main Street investors grew marginally more bullish after gold’s solid gains.
“Sideways,” said Darin Newsom, senior market analyst at Barchart.com. “Between the high of $5,666.60 and low of $4,128.50. Does a $1,500 range mean I have no idea? Absolutely. It all depends on what the US President posts to social media next.”
“Up,” said James Stanley, senior market strategist at Forex.com. “There’s been a clear alignment with larger risk trends and while I think there’s good chance of stocks setting fresh lows, I still don’t want to bet against the bigger-picture bullish trend in gold. Instead, I’ll be looking to pullbacks for long setups.”
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “I will be looking to the trade-shortened Good Friday to see whether traders want to be in the market or out of it for the long weekend. My suspicion, given the overblown sell-off and the recent attempts to move higher, is that investors will go long gold this weekend and into next week.”
“I am neutral on Gold for the coming week, but I think it may continue to be volatile,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “With the markets closed for three days, plus a bank holiday Monday, trading will likely be thinner than usual.”
“As we have seen over the past 24 hours, there can be huge swings and reversals in both directions from hour to hour, rumor to rumor or even tweet to tweet,” Cieszynski added.
“Up, but the degree of appreciation is very dependent on the war,” said Adrian Day, president of Adrian Day Asset Management. “Now we know that Turkey sold almost 60 tons and was clearly one cause of gold falling so much earlier in March. The revelation is positive since it removes uncertainly about gold’s decline.”
“Once the war ends, monetary factors will come to the fore, and however much central banks around the world express concern for stubborn inflation, most will pivot when the economies start to falter,” Day added.
Kevin Grady, president of Phoenix Futures and Options, was looking at open interest to calculate the true size of the gold market – and the potential for near-term volatility over the Easter long weekend.
Grady said gold’s overnight highs and lows have been 100% in response to the market’s perception of where the Iran war is headed. “I think that this is Iran-based; this is based off of last night,” he said. “I was watching the markets like side by side as [Trump] was talking last night. As soon as he said we would go in and bomb, and we could even bomb their oil fields, everything just reversed. Everything. Equities dumped, energy shot up, crude shot up, gold dumped.”
“This is a political nightmare for him, I think, if he stays too long, and I think what he's going to try to do is to figure out a way to end it, and then I think gold will go back higher.”
Grady said that if he were positioning himself as a gold trader of gold investor ahead of this weekend, with these types of announcements, and entering another holiday period with thinner trading, he’d want to be flat.
“There's no upside,” he said. “At some point, this isn't trading – when you're just going to be having position on and hope the news that comes out goes your way. The open interest is 357,000 contracts, which is pretty low. Even March 23 was over 406,000. In January, I think it was the 23rd, it was 520,000 or so open interest. The active contract is June and the active contract is 265,000.”
“Look at the commodity indexes,” Grady added. “All the big indexes, the Goldman and the Bloomberg, all these big commodity indexes, those are passive longs, they never get out. They're just long futures, they're long energies, they're long metals, they're just long. And what's that percentage of open interest? If you take them out of the market, how many actual people are in there? Other than the passive longs, it's not like people are sitting there saying, ‘Hey, I'm long X amount and I'm just holding on for this move.’”
“There's just too much news out there, and it's just minute to minute. That's why you see these gyrations.”
Once the market gets clarity on Iran, however, Grady expects the market to attract plenty of attention once again.
“I think once this [Iran] news is out of there, I think the fundamentals will come back into the market,” he said. “And I think the fundamentals are bullish for gold.”
This week, 15 analysts participated in the Kitco News Gold Survey, with Wall Street retreating to the sidelines amid the administration’s contradictory messaging. Four experts, or 27%, expected to see gold prices move higher during the week ahead, while three others, representing 20%, predicted a price decline. The majority of analysts – 53% of the total – saw the risks evenly balanced in the near term or preferred to sit the week out.
Meanwhile, 61 votes were cast in Kitco’s online poll, with Main Street investor sentiment improving alongside gold’s weekly performance. 36 retail traders, or 59%, looked for gold prices to rise next week, while another 13, or 21%, predicted the yellow metal would lose ground. The remaining 12 investors, representing 20% of the total, expected gold prices to consolidate during the week ahead.
Next week will likely begin with a focus on this Friday’s employment report before the market focus shifts to new inflation, growth and industrial data, along with the minutes from the Federal Reserve’s most recent meeting.
On Monday, markets will receive ISM Services PMI for March, followed by US Durable Goods Orders for February on Tuesday. Wednesday afternoon will see the release of the minutes from the Federal Reserve’s March monetary policy meeting.
On Thursday, traders will be watching for final Q4 GDP, and the Core PCE for February, along with weekly jobless claims, and the week wraps up on Friday morning with the release of March CPI and Preliminary University of Michigan Consumer Sentiment.
“Gold stalled last week after recouping a little more than half of what is lost since the Middle East war began,” said Marc Chandler, managing director at Bannockburn Global Forex. “President Trump’s national address failed to sustain the optimism that had lifted risk assets, including gold. Central banks of oil importers appear to be selling gold and/or Treasuries. Reports suggest Turkey has been a significant gold seller. On the other hand, oil/gas exporters like Russia and some OPEC nations may have sold gold as well.”
“The $4532 area, basis spot is a retracement objective of the recovery since the March 23 low near $4100” Chandler added. “The next target is around $4450.”
Adam Button, head of currency strategy at Forexlive.com, said that while headwinds persist for gold in the near term, the longer-term bid beneath the yellow metal is only strengthening.
“Gold is interesting,” Button said. “At some point this war will end. And this week we saw that whenever peace comes, a big bid is coming to gold.”
Button noted that Asia was also buying gold last night, right up until Trump’s speech, and the demand isn’t going anywhere. “This war in Iran has damaged the standing of the United States in the world, and trust in American leadership, and all that erodes dollar confidence,” he said. “However this war ends, whenever this war ends, gold is now a peace trade.”
Button said that even if the war worsens, gold might not sink much lower than the recent lows, but he’s still concerned about the possibility that oil importers are forced to sell their bullion holdings for cash.
“It's not even clear to me that it has that much further to fall if the war continues,” he said. “I think gold got beaten up on the usual liquidity and de-risking, which is pretty normal now. The risk is that the countries most likely to be hit hard by a genuine oil shortage have large gold reserves, and a country like Turkey needs to defend its currency. These massive energy importers, a lot of them have big gold reserves, and will need to [sell]. Turkey was out there defending their currency and selling gold, and they have huge reserves.”
“If we end up in a situation of a genuine oil shortage, there's a risk that you have physical gold selling,” he added. “That's part of the reason we saw the weakness in gold last week, three to four dramatic days of selling.”
Looking ahead to the long weekend, Button said the thin market means any moves will be exaggerated in both directions.
“Right now, the market is just grasping at the thinnest headlines,” he said. “You see these little swings in markets based on small hints one way or the other. Trump one day looks like he wants to declare victory and move on, and the market decided they really liked that idea. But then he makes a speech about bombing them back to the stone age, and then they think, ‘Oh geez, everyone's going to blow up the refineries again.’”
Button agreed that the longer-term case for gold has only strengthened during this war, and there’s plenty of pent-up demand just waiting to be unleashed once the market sees daylight.
“If Trump would've declared victory yesterday and said America was leaving, gold would be up at $5,000 right now,” he said. “I think it would've been huge rally today. And then you're just on your way after that.”
Analysts at CPM Group are recommending their clients stay on the sidelines until April 17, as they see gold trading anywhere between $4,100 and $4,850 per ounce.
“Gold prices dropped to a low of $4,580.40 Thursday morning trading,” they noted. “CPM had issued a Gold Buy Trade Recommendation on Tuesday, when prices were $4,712.60. We placed a close-in stop loss level given the volatility and weakness in prices. This stop was at $4,625, broken this morning.”
CPM issued a ‘stand-aside’ recommendation on Thursday. “While there are many reasons for gold prices to rise, and CPM expects them to in the weeks and months ahead, there is heightened uncertainty and volatility across financial markets today,” the analysts wrote. “Gold and other precious metals have fallen, suggesting a perception of a reduction of risks, perhaps coming after President Trump’s rambling 19-minute statement Wednesday evening. Equity markets also have fallen sharply, however, which would suggest financial markets do not expect Trump’s comments about ending the war within three weeks solves any of the problems the attack on Iran has caused.”
“In this uncertain market space and time, standing aside to see how low gold prices may fall before resuming any buying seems the most logical approach.”
Michael Moor, founder of Moor Analytics, expects gold prices will most likely decline next week.
“Lower, unless we take out lower timeframe formations mentioned below,” he said. “In a Higher time frame: I cautioned on 8/16/18 the break above $1,183.0 warned of renewed strength. We have seen $4,443.1. This is ON HOLD. In a Medium time frame: The trade below 52554 (+15 tics per/hour) projects this down $220 minimum, $740 (+) maximum—we attained $1,526.8. This is ON HOLD.”
“On a lower timeframe basis: The trade below 52554 (+15 tics per/hour) projects this down $220 minimum, $740 (+) maximum—we attained $1,155.4. This is ON HOLD,” Moor said. “We held exhaustion at 40956 with a 41000 low and have rallied $725.9. The trade above 41814 (-1 tic per/hour) has brought in $644.5 of strength. The trade above 43642 has brought in $461.7 of strength. These are ON HOLD. The break back below 47561 (-12 per/hour) has brought in $175.7 of pressure and the trade below 47193 (+30 per/hour) has brought in $138.9 of pressure. A maintained gap lower will leave a minor bearish reversal above. Decent trade above 47359 (-12 tics per/hour starting at 1:20pm) on 4/2 will warn of decent strength again. Decent trade above 47762 (-11 tics per/hour starting at 1:20pm) on 4/2 will project this upward $155 minimum, $900 (+) maximum; but if we break above decently and back below decently, look for decent pressure.”
And Kitco senior analyst Jim Wyckoff noted that gold and silver prices were sharply lower in early U.S. trading today, pressured by gains in the U.S. dollar index and an uptick in U.S. Treasury yields. “Once again, gold and silver bulls are frustrated their markets cannot catch safe-haven bids amid keen risk aversion in the marketplace that sees crude oil prices sharply higher,” he said.
“Technically, April gold futures bulls’ next upside price objective is to produce a close above solid resistance at $5,000.00,” Wyckoff said. “Bears' next near-term downside price objective is pushing futures prices below solid technical support at $4,300.00. First resistance is seen at $4,700.00 and then at $4,750.00. First support is seen at $4,600.00 and then at the overnight low of $4,580.40. Wyckoff's Market Rating: 5.0.”
At the time of writing, spot gold last traded at $4,676.74 per ounce for a gain of 6.56% on the week but a loss of 1.71% on the day.
