(Kitco News) – Gold prices saw another choppy week, as dip-buying and softer inflation data helped the precious metal defend the $4,000 level, while the Federal Reserve’s hawkish hold, rising Treasury yields, and renewed oil-driven inflation concerns capped the rebound.
Spot gold kicked off the week trading at $4,051.51 per ounce on Sunday evening, and pushed higher through Monday as traders continued to buy weakness near the lower end of gold’s recent range. The move stalled Tuesday as markets turned cautious ahead of the Federal Reserve’s rate decision, with elevated oil prices and persistent inflation concerns keeping yields supported.
Gold broke below $4,050 on Wednesday morning and briefly lost the $4,000 support level, with spot prices ultimately setting their weekly low at $3,995.90 per ounce. The yellow metal recovered before the Fed held rates steady at 3.50% to 3.75%, but three dissentions in favor of a hike gave little reassurance that policy easing was coming, with buyers stepping back in as traders digested the Fed’s latest message and positioned for upcoming inflation data.
The strongest rebound came Thursday after softer PCE inflation helped cool some of the market’s rate-hike concerns, pushing gold back above $4,100. Spot gold ultimately set its weekly high at $4,119.82 per ounce at midday Thursday, but the rally faded Friday after the Employment Cost Index came in slightly hotter than expected, lifting Treasury yields and pressuring the metal into the close.
After failing to hold above $4,100, spot gold was last trading at $4,048.40 per ounce Friday afternoon, leaving the metal nearly flat but slightly lower on the week.
The latest Kitco News Weekly Gold Survey showed Wall Street evenly divided between bulls, bears, and the fence, while Main Street sentiment slid out of bullish territory after another failed breakout.
“Unchanged,” said Adrian Day, president of Adrian Day Asset Management. “There needs to be more back and forth in the price until markets have come to a conclusion on the outlook for monetary tightening ahead. The market also needs clarity on the conflict in the Middle East; when that ends, the dollar will lose its safe-haven premium, and that will also be positive for gold. For now, though, the market needs clarity before moving convincingly higher.”
“Sideways,” said Darin Newsom, senior market analyst at Barchart.com. “Nothing has changed with the gold market. And that’s what makes its continued sideways trend more interesting. Investors continue to hop around from sector to sector, looking for the next volatile spike rally or selloff, while central banks around the world continue to buy gold. Of the two, the latter is the better indicator of the economic trouble always lurking just under the surface. And we know where the epicenter of that trouble is.”
“For now, I’m expecting the December futures contract to yo-yo back and forth across $4,129.50 on its daily close only chart, the midpoint between the low daily close of $4,048.70 (July 16) and $4,210.30 (July 22),” Newsom said.
“Up,” said James Stanley, senior market strategist at Forex.com. “The 4k level still doesn’t look like it wants to give way in spot gold. The run in yields is pretty much the negative scenario, but despite that, buyers have still held the line at 4k, so I’m going to stick with my long-term bias until logic dictates a shift.”
“I am neutral on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “It appears to still be consolidating around $4,000.”
“Unchanged,” said Rich Checkan, president and COO of Asset Strategies International. “The Federal Open Market Committee (FOMC) left U.S. Interest rates unchanged. Gross Domestic Product (GDP) growth slowed. Personal Consumption Expenditure (PCE) index moderated slightly. The conflict in Iran is spreading to new fronts. As a result of all of this and a slightly stronger U.S. dollar, I don’t see gold moving sustainably higher just yet.”
“Support at $4,000 sets the bottom end of the range,” Checkan added. “The factors above cap the high end. We have an extended opportunity to buy gold well while it lasts.”
Bob Haberkorn, senior commodities broker at StoneX Group, told Kitco News that he’s very bullish on gold and silver now, as he doesn’t believe rate hikes are on the table anytime soon, but he expects one more break lower before the rally resumes.
“With the Fed announcement, even though there's three dissensions, I think it's positive for gold,” he said. “It opens the door for a September rate hike, but I don't know… the way the Fed’s moving, and the comments after the fact, I got the impression that they're not going to be doing any rate hikes over the next couple of months despite the inflation numbers that we are having. It's a tough spot here to start raising rates for them politically. And I don't think that they're going to move in that direction.”
“Overall, I am very bullish for metals. Despite the three objections, I think it still bodes well for gold and silver,” Haberkorn said. “However, with the Iran war going on and seeming like it's picking up again, I think for next week, gold and silver are going to remain under pressure, and will continue to stay in this sideways range market.”
Haberkorn said he’d actually like to see gold break below its recent lows, because he believes this could provide the catalyst for the next leg higher.
“It feels like gold needs one washout to $3,800 before it can get its footing back, to show some support,” he said. “Oil is up again today and putting pressure on metals. Equities are a little softer here, so it feels like risk-off considering what's going on in the energy markets.”
Haberkorn said he doesn’t think a September rate hike would fly at the Fed, for political reasons.
“I don't think it's in the cards right now,” he said. “I think the pressure on them if they start hiking rates in September... I know they're supposedly independent, but I don't think they have it in them to do a hike here coming up in September.”
On the other hand, Haberkorn said Warsh would probably be fine with the markets pricing in a hike and then being surprised with another hold, though he or other FOMC members may try to lay the groundwork for this despite his insistence on no forward guidance.
“I think he'll be happy to surprise markets with no hike, and have messaging along with it,” he said. “He was put in by Trump. Trump wants cuts, actual cuts, now. [Warsh] does have a board, and he's got to get around a board and all that. I think he's going to politically toe the line here for the time being, and keep rates unchanged, unless some situation arises.”
“It feels like the Iran war is going to heat up here a little bit more, and energies are going to trade a little higher,” he said. “I think gold and silver will start acting like gold and silver at some point, and be a flight-to-safety trade, because I think people will see the Fed behind the eight ball right now. They should raise rates to tamp down inflation. But, politically, are they able to raise rates?”
“The Fed's stuck in a bad spot for the moment,” he added. “I don't think we have the appetite to raise rates right now.”
“I think to have one more washout, just on the expectations that there is a hike coming in September – which I don't think will happen – would be beneficial for this for the longer term, for the bulls,” he said. “I think there is a floor around four thousand, but a dip below there I think would be bought up fairly quickly, and a dip being to about $3,800, out of this channel.”
Haberkorn said he sees metals trending lower in the near term as energy prices rise once again, but believes gold could still break to the upside at some point without this final dip. “If it doesn't work out that way, if it breaks out of this channel and goes higher, I'm willing to adjust accordingly, and to get in at a higher price if I have to, around $4,300 or $4,400 or something along those lines.”
“At some point we will break out of this channel here,” he added. “On expectations for a Fed hike, it's more likely that we break down to the downside for a short term-move. Then the Fed doesn't cut rates in September, and we see this big move start up for the fall in precious metals, like what we saw last year.”
This week, 17 analysts participated in the Kitco News Gold Survey, with Wall Street sentiment split into three nearly equal parts after an equally indecisive performance from the yellow metal. Five experts, or 29%, expected to see gold prices gain ground during the week ahead, while six others, representing 35% of the total, predicted a price decline. The remaining six analysts saw the yellow metal continuing its sideways chop next week.
Meanwhile, 184 votes were cast in Kitco’s online poll, with Main Street investors losing their bullish majority after gold stayed stuck in its recent channel. 87 retail traders, or 47%, looked for gold prices to rise next week, while 55 others, or 30%, predicted the yellow metal would lose ground. The remaining 42 investors, representing 23% of the total, expected to see further consolidation during the week ahead.
Next week’s economic news calendar revolves around employment, with multiple measures of the U.S. job market coming out, culminating in July’s nonfarm payrolls report. Markets will also receive key services and manufacturing sector surveys.
The week kicks off Monday morning with the release of ISM Manufacturing PMI for July, and Tuesday morning brings the first look at employment with the JOLTS job report
Then on Wednesday, traders will be watching July’s ADP employment data, followed by the ISM Services PMI, with weekly jobless claims released on Thursday morning.
The week wraps up with the Friday morning release of Nonfarm Payrolls for July.
“Gold has not proved itself,” said Marc Chandler, managing director at Bannockburn Global Forex. “It traded mostly sideways last week in a $3996-$4116 range. It held above $4000 for the past two sessions. It fell about 0.60% this past week, despite a weaker USD and softer short-term US rates. The resumption of hostilities in the Middle East failed to spur a sustained rally in oil (Sept WTI snapped a three-week 30% advance), and while this seemed to reduce the need of oil importers to sell oil, it failed to help the yellow metal. It looks weak going into Aug. The year’s low was recorded on June 30 near $3943.”
Sean Lusk, co-director of commercial hedging at Walsh Trading, told Kitco News that the $4,000 per ounce support level is looking pretty firm, and the gold price is likely to move higher in the near term as it follows seasonal trading patterns.
“I don't think many people want to sell below $4,000,” he said. “It’s been a stopper on the downside. Of course, we've slipped below it a few times, but we came right back up above it.”
Lusk said even though gold is still negative on the year, there’s a potential seasonality play coming into focus. He said he expects the yellow metal to make some gains in the next few weeks before backing off a little bit in September. “Then, you buy it back in October going into Diwali.”
He said the November midterms represent a risk to the seasonal trade, but added that the weeks leading into Christmas, then through Chinese New Year and Valentine’s Day in February should provide support for gold prices.
On the market’s expectations for a September rate hike, Lusk said he thinks that oil prices will come down one way or another as we head into year-end, and this will ease the inflationary pressures, making rate hikes moot. He said that the U.S. and Iran will either come to a lasting agreement which ends the threat to oil shipments in the region, or the various workarounds such as pipelines and other shipping lanes will be scaled up and reinforced, blunting the impact of Iran’s attacks.
“That's going to take a lot of the inflationary pressures out of the market,” he said, “so you're going to have less of a need [for rate hikes].”
Alex Kuptsikevich, senior market analyst at FxPro, expects gold prices to decline further next week.
“Despite some upward momentum during the week, gold has failed to establish a solid uptrend,” he wrote. “The current sideways movement, fluctuating between $4,000 and $4,200, is the best the bulls can manage. Moreover, over the past week, gold has decoupled from equities, as the latter’s recovery rally at the end of the week took place against a backdrop of a steady sell-off in gold.”
“Last week’s narrative remains valid: gold bulls are unable to turn the market towards growth after three years of gains, but they are also reluctant to relinquish the psychologically important $4,000 mark for long,” Kuptsikevich said. “Uptrends in gold often begin in August–September, but in bear markets, September has also frequently seen intensified selling.”
“Another point to note is that if gold closes the week below the spot price of $4,007, this will mark the fifth consecutive month of decline,” he added. “In 2022, the run was longer but not quite as deep, and the closest parallel would be 2012–2013, when an 8-month decline of one-third was followed by two years of a bear market, albeit with a less pronounced fall.”
Michael Moor, founder of Moor Analytics, expects to see gold prices fall next week.
“Lower UNLESS we break decently above 41397 (-4.5 tics per/hour starting at 9:20 am EST) —a 'decent' penetration is $18.6 until the close,” he wrote. “In a Higher timeframe: 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. We held exhaustion with a 56268 high and rolled over $1,651.1. This is ON HOLD. On a medium timeframe basis: The trade below 52554 projected this down $740 (+)—we attained $1,300.0. The trade below 52036 brought in $1,248.2 of pressure. The trade below 51606 brought in $1,205.2 of pressure. These are ON HOLD. We held exhaustion with a 49177 high after a pullback and rolled over $962.3. The break below 48185 projected this down $185 (+)—we attained $863.1. The trade below 47923 projected this down $205 (+)—we attained $836.9. The break below 47420 brought in $786.6 of pressure. On 5/15 we left a medium bearish reversal—we have come off $597.8 from 45532. We held exhaustion with a 44036 high and rolled over $448.2. On 6/18 we left a minor bearish reversal—we have come off $323.9 from the 42793 open. These are ON HOLD. We held macro exhaustion with a 39554 low and bounced $260.1—if this holds and we start a bona fide bullish correction, the minimum target is 49636. This is ON HOLD.”
“On a lower timeframe basis: We held exhaustion at 41795-2324 with a 42155 high and rolled over $252.5,” Moor said. “This is ON HOLD. In the (Z) we held exhaustion with a 40190 low and have bounced $211.0. Yesterday left the minor bullish reversal warned about below—we rallied $47 tics from the 41332 open. These are ON HOLD. The failure back below 41442 (-4.5 tics per/hour) now warns of decent pressure. Get long on a decent penetration above 41397 (-4.5 tics per/hour starting at 7:00 am) and/or on a pullback thereafter and look for decent strength. Get long on a decent penetration above 41596 (-4 tics per/hour) and/or on a pullback thereafter and look for 55.00 min, 370.00 (+) max. If we break above decently and back below decently, look for decent pressure.”
At the time of writing, spot gold last traded at $4,045.16 per ounce for a loss of 1.10% on the week and 1.42% on the day.
