(Kitco News) – Gold prices rebounded during a wild week, as an early selloff driven by surging oil prices, near-5% Treasury yields, and expectations for a Federal Reserve rate hike gave way to a sharp recovery after the hike was delivered and oil and yield pressure eased.
Spot gold kicked off the week trading at $4,340 per ounce on Sunday evening, and that yellow metal quickly came under pressure as traders priced in stronger inflation risks from higher crude prices and renewed U.S.-Iran tensions. The selling accelerated through Monday and Tuesday, with gold dropping to a more than one-month low near $4,279.30 per ounce on Tuesday as markets treated this week’s Fed hike as increasingly locked in.
Gold attempted to stabilize Wednesday ahead of the Fed decision, but the rebound failed after the FOMC voted 12-0 to raise rates by 25 basis points to a 3.75% to 4.00% target range, while the updated projections showed 16 of 18 policymakers still expected another hike before year-end. Spot gold fell back after the announcement and set its weekly low near $4,261.80 per ounce on Wednesday afternoon.
The yellow metal recovered Thursday as lower crude oil prices, a softer U.S. dollar, and easing Treasury yields helped traders unwind some of the post-Fed pressure. Friday saw the rally extended as oil prices fell for a third straight session and yields moved back from the week’s highs, allowing gold to climb to its weekly high of $4,400.60 per ounce.
After pulling back from this intraday high, spot gold eased into the weekend trading near $4,377 per ounce, leaving the precious metal positive on the five-day chart and snapping a three-week losing streak.
The latest Kitco News Weekly Gold Survey showed Wall Street unanimously bullish after gold’s post-Fed gains, while Main Street bolstered its bullish majority following gold’s solid weekly performance.
“Gold, basis the spot market, rose for the first time in four weeks, though at a little more than 0.5% the gain was minimal,” said Marc Chandler, managing director at Bannockburn Global Forex. “It bottomed in the middle of the week near $4235.60 and reached a new high for the week ahead of the weekend, slightly below $4400. A move above $4432-$4445 lifts the tone.”
“Higher,” said Adam Button, head of currency strategy at investingLive. “Gold buyers appeared after a hawkish FOMC. That was impressive.”
“Up,” said Darin Newsom, senior market analyst at Barchart.com. “Dec gold’s short-term trend on its daily close only chart has turned up, indicating at least a slight increase in investor buying (or possible a decrease in selling interest from the investment side). And while Dec dipped below its 45-day moving average at this past Tuesday’s close, it did not trigger algorithm selling. Taking into account other technical statistics, most notably stochastics continuing to indicate the market is closer to oversold than overbought and neutral market volatility, gold could find buying interest next week.”
“BUY,” said Mark Leibovit, publisher of the VR Metals/Resource Letter. “Cycle low.”
“Up,” said Adrian Day, president of Adrian Day Asset Management. “Recent actions by US Treasury Secretary Bessent tell us that the US bond market is broken and in trouble. The market’s reaction to Bessent’s interventions and to the Fed’s quarter-point hike tell us that these actions are not sufficient.”
“A broken treasury market, along with persistent inflation, is positive for gold.”
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “The quarter-point interest rate hike by the Federal Open Market Committee (FOMC) earlier this week was already priced into gold. So, after a knee-jerk pullback, gold recovered the lost ground. Going forward, with interest rates at 4% and ‘official’ inflation figures at 3.4%, there is really no incentive to forego gold for a real return of a half percent.”
“Of course, consumers are feeling more like 8% inflation,” Checkan added. “Gold is much more attractive than a negative 4% real return. Gold moves higher from here.”
“Up,” said James Stanley, senior market strategist at Forex.com. “Buyers put in a good show this week and at this point the weekly candle is green after a three-week sell-off. Perhaps more important was the support at $4300, with this week looking like a bit of capitulation from bears after they failed to run with the breakdown post-FOMC. Sticking bullish until evidence suggests a flip is in order.”
Sean Lusk, co-director of commercial hedging at Walsh Trading, sees green lights for gold prices coming out of the Fed and heading into seasonal strength.
“I think there's enough data here that's positive, so even if they do another hike, I can see gold shooting up from here through October and then probably easing off ahead of the midterms,” he said. “That's the way I think I should play it. If you get a breakdown in energy prices, I think that would be helpful. The stock market has really held in there, we haven't seen a huge amount of attrition, probably due to the fact that we've got all this talk about diesel and everything else not being able to be sustained, and yet the consumer has been resilient.”
“A big deterrent here is if we do have another run up in crude prices, up to $110 or $115,” Lusk cautioned. “But it looks like people are starting to talk again. The stalemate with Iran is doing nothing for anybody, and no one is going to put up with the people in Yemen taking things over and dictating terms. I can see the potential for a de-escalation.”
Lusk expects gold prices and the broader market to begin taking ytheir cues from geopolitics rather than economic indicators between now and the U.S, midterm elections.
“The real key data won't be out until October,” he said. “We've got month- and quarter-end, but we don't have too much… Durable goods and consumer confidence, we get a reading on Q2 GDP at month-end, but there are so many things that are moving in and out, we're so headline driven right now, that it's hard to baseline a game plan from the data.”
Lusk said he’s reverting back to the seasonals for the time being. “From the end of September, for a one month stretch, you get a good run in metals back up on physical demand, Diwali, those types of things,” he said. “The market may go back to trend for a little bit, provided that crude's not ripping up to $119.”
“All things being equal, I think there's enough good-looking data,” Lusk said. “Not much is causing any major trepidation in there, so gold is getting back to $4,300 or $4,400, kind of where we closed last year. I think we can make another run here.”
This week, 16 analysts participated in the Kitco News Gold Survey, with Wall Street going full bull after a Fed rate hike couldn’t slow gold’s momentum. All 16 experts, 100% of respondents, expected to see gold prices gain further ground during the week ahead.
Meanwhile, 220 votes were cast in Kitco’s online poll, with Main Street investors bolstering their bullish majority. 127 retail traders, or 58%, looked for gold prices to rise next week, while 52 others, or 24%, predicted the yellow metal would lose ground. The remaining 41 investors, representing 19% of the total, expected to see sideways price action during the week ahead.
Next week will be relatively quiet in terms of economic data, but markets will still receive a handful of second-tier indicators along with one more central bank rate decision.
On Wednesday morning, traders will be watching for the S&P Global Flash PMI data for September. Then early Thursday, the Swiss National Bank will issue its monetary policy decision, along with weekly jobless claims.
The week wraps up with the Friday morning release of Durable Goods Orders for August, followed by the second reading of University of Michigan Consumer Sentiment for September.
Colin Cieszynski, chief market strategist at SIA Wealth Management, said he’s bullish on gold next week, and he sees reasons for longer-term optimism in the charts.
“We had a huge rally up into the end of January, we retested and failed, and then we spent six months trending downwards,” he said. “I think what we're seeing now is we broke out in August, and we're trending up again. We had a bit of a setback going into the Fed meeting, but subsequent to the Fed meeting, gold has stabilized. And gold is stabilizing at a higher range than where it was trading in the summer. It was trading around $4,000 in the summer, and it's trading around $4,300, $4,400 now.”
“I’m not suggesting gold's going to turn around and go to the moon, but it looks like gold has probably bottomed out for the near term, and could trend a little bit upwards.”
Cieszynski said that if the Federal Reserve does hike interest tares again this year, it won’t be before the December meeting. “There’s no way they're going to raise rates a week before midterm elections,” he said. “They just don't do that. Whatever the meeting is right before a midterm or a presidential election, the Fed historically stands pat, so you're really looking at no rate hike in the States for three months.”
Cieszynski said the broader economic backdrop also favors gold during this period. “Inflation is picking up, and gold is historically an inflation hedge, so that is still a tailwind for gold, and it remains that way in the absence of anything else,” he said. “Unless Treasury yields spike and the U.S. dollar takes off, all else being equal, you're in a more inflationary environment now where the Fed's probably not going to do anything for three months; that’s neutral to positive for gold.”
Asked what he expects the key drivers of gold’s price action will be between now and the December meeting, Cieszynski said that barring a big acceleration in inflation, he thinks elections will move the market – and not only the midterms.
“There are multiple elections going on,” he said. “It's not just in the U.S. Israel's having an election, the UK is having an election, other people are having elections, so the political situation is unstable. And an unstable political situation like that is often, again, neutral to bullish for gold.”
Alex Kuptsikevich, senior market analyst at FxPro, expects gold prices to rise again next week.
“The second half of the week was positive for risk assets,” he said. “Even gold managed to rise, despite a background of the dollar’s strength following a reassessment of the outlook for US monetary policy. By raising interest rates, the Fed demonstrated that it is prepared to act decisively and in strict accordance with fundamental signals. Prior to the September meeting, there were high expectations that Trump’s appointee as Fed Chair would find reasons not to tighten policy. On balance, this has boosted confidence in the Federal Reserve and US assets (the dollar and bonds) without harming equities, whilst triggering an impressive rally in precious metals.”
“Although gold is ending the week with a slight gain, this masks an important turning point: the dip below $4,250, to which the price fell immediately after the rate hike, has been recouped,” Kuptsikevich said. “From a technical analysis perspective, this reversal from the 50-day moving average confirms a shift in the medium-term trend to bullish. It also confirms the formation of an uptrend, marked by a sequence of higher local lows since mid-July.”
“Provided favourable conditions persist, the price of an ounce of gold could reach $4,500 as early as next week,” he added. “A move into the $4,700 area in the coming weeks, should it occur, could convince sceptics that gold is steadily moving towards new highs.”
Analysts at CPM Group issued a Buy recommendation with an initial target price of $4,590 between September 17 and October 2, and a stop loss at $4,270.
“Following the Fed’s decision yesterday gold prices fell below $4,300, but have since moved back to moving on either side of $4,400,” they wrote. “Gold prices have been in a declining trend since 25 August, when prices peaked at $4,755. In CPM’s view this trend appears to be turning. Prices have managed to hold above support levels over the past several days this week. Technicals appear to be gradually trending higher. This coupled with fundamentals and everything that is happening politically around the world could begin to push prices sharply higher in the months ahead.”
“Can prices still fall in the very near term? Yes, but if they don’t then there is the possibility of potentially missing a large run up in prices.”
“CPM’s view is that gold prices move higher in the next several months as the U.S. midterm elections near,” the analysts said. “This view is supported by everything that is happening around the world, from the U.S. and Iran conflict and its fallout effects to the tariffs, and more. If prices begin to rise sharply higher and surpass the target the Stop Loss could be raised, creating a trailing Stop Loss.”
Michael Moor, founder of Moor Analytics, expects to see gold prices post further gains next week.
“HIGHER, unless we fail below the formation 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. These are OFF 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. These are ON HOLD. We held macro exhaustion with a 39554 low and bounced $799.6—if we continue in a bona fide bullish correction, the minimum target is 49636. This is OFF HOLD.”
“On a lower timeframe basis: We held exhaustion with a 40190 low and bounced $736.0,” Moor said. “The trade above 41192 brought in $635.8. On 8/4 we left a bullish reversal—we have rallied $632.6 from the 41224. The break above 41389 projected this up 345.00 (+)—we attained $616.1. On 8/5 we left a major bullish reversal—we rallied $449.8 from 43052. These are OFF HOLD. The break below 46369 brought in $363.6 of pressure. The break below 45886 projected this down $205 (+)—we attained $315.3. The trade below 44227 (+5.5 tics per/hour) projected this down $65 minimum, $500 (+) maximum—we attained $156.6. These are ON HOLD. We held exhaustion with a 42733 low and rallied $166.5. The break above 43239 (+5 tics per/hour) has brought in $115.9. The break above 43440 has brought in $95.8. The trade above 43757 projects this upward $100 minimum—we have attained $64.1 so far; but if we fail back below where it comes in today at 43531 (-7.5 tics per/hour starting at 12:20pm EST), look for decent pressure. Decent trade above 44281 (-2.7 tics per/hour) should bring in decent strength.”
At the time of writing, spot gold last traded at $4,378.38 per ounce for a gain of 0.91% on the week and 0.84% on the day.
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