(Kitco News) – Gold prices finished the week higher after a volatile stretch, as early pressure from rising Treasury yields, a firmer U.S. dollar, and renewed inflation concerns gave way to a late-week rebound driven by softer yields, lower oil prices, and renewed dip-buying near $4,100 per ounce.
Spot gold kicked off the week trading at $4,142.40 per ounce on Sunday evening, and the yellow metal initially pushed higher as traders continued to assess the inflationary impact of the U.S.-Iran conflict, elevated oil prices, and another round of central bank gold buying from China. The rally stalled Tuesday as the dollar and yields strengthened, and gold came under heavier pressure after the minutes of the September Fed meeting showed most policymakers still expected another rate increase would be needed before year-end.
The selling accelerated Wednesday as rate hike expectations and a stronger dollar kept pressure on non-yielding assets, with spot prices setting their weekly low at $4,066.31 per ounce before buyers returned near the lower end of the recent range. Gold recovered Thursday after a strong 30-year Treasury auction helped yields retreat from the morning highs, even as oil’s surge kept inflation risk and December Fed-tightening expectations in the trade.
Friday delivered the strongest move of the week, as the U.S. dollar softened, Treasury yields eased, and oil prices pulled back after reports of productive U.S.-Iran talks reduced some of the downward pressure on prices. The rebound gained further traction after preliminary University of Michigan consumer sentiment fell to 46.3 and inflation expectations rose, reinforcing gold’s appeal as an inflation hedge while keeping next week’s CPI and PPI data in focus.
After climbing to its weekly high of $4,207.48 per ounce early Friday morning, spot gold eased into the weekend trading just $5 short of the key $4,200 resistance level.
The latest Kitco News Weekly Gold Survey showed Wall Street back on the brink of a bullish majority, while less than half of Main Street believed gold would gain ground next week.
“Up,” said Darin Newsom, senior market analyst at Barchart.com. “Fundamentally, the market hasn’t changed. However, if the latest mood of the US president holds and he decides not to bomb Iran again until after US midterm elections, the Energies sector could come down and metals rally. Technically, Dec gold is oversold and could post a short-term bullish close Friday if it settles above the previous high daily settlement of $4,187.10 (October 6). Dec remains well below its 45-day moving average calculated near $4,398, meaning there is some space to move higher short-term.”
“Unchanged,” said Adrian Day, president of Adrian Day Asset Management. “We expect more back and forth until an end to the war, leading to expectations of lower CPI and less pressure on central banks to hike. The end of the war would also remove the safe-haven premium on the dollar. We don’t expect a large decline but no breakout either.”
“Up,” said James Stanley, senior market strategist at Forex.com. “I think we may have seen capitulation this week as there was a clean sell-off and sellers quickly backed away from the lows. Closing the weekly bar in the green is notable and while trying to predict bottoms is tough, there’s mounting evidence that gold is continuing to see buyers show at or around the $4k level.”
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “The overriding belief now is there will be no Fed interest rate hike at the October FOMC Meeting. So, that should take some of the short-term pressure off gold. Treasury yields and a strong U.S. dollar will cap appreciation, but gold should still climb over the next week.”
Kevin Grady, president of Phoenix Futures and Options, is watching next week’s CPI report for gold’s near-term reaction as well as clues about the Fed’s medium-term direction, but warned that one number doesn’t truly capture the complexity of the situation.
“We have some inflation numbers coming out next week, which I think are going to be important,” he said. “I think we have to just wait on the data. We also have earnings coming out, and I think earnings are going to be great. I think the markets look positive. I think a lot of the news coming out has been positive.”
“I just think it's about how the Fed wants to digest that data,” Grady added. “We saw the bad jobs number of 29,000. Everyone's saying it's clear markets rallied on that, because they're not going to be raising rates again. Right now, everyone's just in this position of trying to figure out what the Fed's going to do. We're stuck at a level, and we have to just wait it out and see where we land on this.”
“It's just one of those things; you don't really have a choice. We have to just wait it out.”
Grady said he thinks gold has lost the support it was enjoying from the debasement trade, and it’s now watching other markets for future direction.
“We're trying to figure out month to month, on each number, what's moving,” he said. “If that 0.2% changed what the Fed's going to do… there's a lot of things right now that gold is waiting on.”
“The key thing is, with everything going on, with where the bond market and yields are, gold is holding up.”
Grady said that while he expects gold to continue trading in its recent range, he expects enormous volatility within that range because of the automated trading that's dominating the market right now.
“I think it's very tick sensitive because the people aren't trading; it's the algos,” he said. “The algos trade literally every word that comes out. So the volatility in the market is not coming from traders trying to pick and see where the market's going. It's algorithms that are in there trading literally off the verbiage that is coming out. Every single sentence, every word is digested by an algorithm, and the algorithm [reacts].”
Grady expects next week’s inflation numbers to come in hotter than expectations. “The inflation numbers have been kind of muted, but I think it's going to hit this month,” he said. “It's tied into energy prices and that's just a fact of it. I think the market's going to digest that; I think they're going to be factoring into it. It's going to be a higher print for inflation.”
“It's not like this is the long-term inflation numbers,” he added. “I think that's what people are trying to decipher. Is this short-term? Is it long-term? There are so many moving parts to it. I just don't think we're going to be trading off of that one number.”
This week, 14 analysts participated in the Kitco News Gold Survey, with half of Wall Street leaning bullish once again after gold’s positive weekly performance. Seven experts, or 50%, expected to see gold prices gain ground during the week ahead, while only two, representing 14%, saw the yellow metal declining. The remaining five analysts, 36% of the total, said they couldn’t predict gold’s direction, or expected sideways churn next week.
Meanwhile, 206 votes were cast in Kitco’s online poll, with Main Street investors still failing to reclaim their bullish majority despite gold’s price resilience. 93 retail traders, or 45%, looked for gold prices to rise next week, while 77 others, or 37%, predicted the yellow metal would lose ground. The remaining 36 investors, representing 18% of the total, expected to see sideways price action during the week ahead.
Inflation data will be the major focus next week, with the release of September’s Consumer Price Index and Producer Price Index reports, but markets will also be watching key regional manufacturing surveys and comments from Fed chair Kevin Warsh.
Tuesday morning will see the release of Existing Home Sales for September. Then on Wednesday morning, the CPI report will be the focus, followed on Thursday by PPI, along with Retail Sales for September, weekly jobless claims, and the Philly Fed and Empire State manufacturing surveys.
Then on Thursday evening, traders will watch for comments from Federal Reserve Chair Warsh when he speaks at an IMF event in Bangkok.
Marc Chandler, managing director at Bannockburn Global Forex, sees gold prices under pressure next week. “In the past week and a half or so, gold basis spot has moved above $4200 on an intraday basis only to be greeted by sellers,” he said. “It must reestablish a foothold above $4230 to suggest a base has formed. Next week, the US will likely report CPI accelerated and with the pendulum over Fed expectations through the middle of next year at the lower end of their recent range, the adjustment could weigh on the yellow metal.”
Colin Cieszynski, chief market strategist at SIA Wealth Management, believes gold’s next major pivot will likely come on the back of geopolitical developments.
“I'm neutral on gold right now,” he said. “It seems to me like it's just range-bound, and that's fine. There's nothing wrong with that.”
Cieszynski said he’s continuing to keep an eye on Treasury yields, but there are plenty of potential sources of volatility for the precious metals these days.
“It's an interesting time, because we've seen that things could just come out of nowhere,” he said. “But they could come out of nowhere in either direction. World peace could break out, and oil goes down, and yields go down, and gold goes up, or the dollar goes down and gold goes up, or the opposite, the yields go up and the dollar goes up and gold goes down. We're just stuck in this back and forth, almost a tug of war, and at this point it's hard to determine which way things are heading.”
“But what is clear is the Fed is looking for any excuse to not do anything at the next meeting,” Cieszynski said. “We'll see what happens with inflation next week, but other than that, I expect things to be pretty quiet.”
Cieszynski said the market is reflecting the current situation and the more probable outcomes quite well right now. “Unless we see something significant kind of change, I think we're just treading water for the moment.”
He pointed out that there are several important elections happening around the world, not just the U.S. midterms, and gold could move on the results.
“The inflection point might be closer to the US elections, or after the US elections,” he said. “And there's other elections. There's a whole bunch of elections in various places happening over the next month or so.”
“The administration seems to want to kick everything till after the midterms, and then let's see what happens with the midterms,” he added. “Does that increase or decrease confidence? Nobody really knows at this point.”
“After the dust settles, we’ll see some of the results of all these various elections, and we can get a better sense of where the world is heading politically.”
Alex Kuptsikevich, senior market analyst at FxPro, sees gold prices trending higher next week.
“Gold rose by almost 3% in the second half of the week, which may well have marked a turning point,” he said. “The precious metal attracted buyers as the price entered the June–July support zone. This is well above the lower boundary of that range at $4,000, a level towards which we had expected the price to fall. Buyers were also supported by increased risk appetite on Thursday, which not only allowed the market to recoup the week’s losses but also pushed it into positive territory, closer to $4,200.”
“Gold has plenty of room to rise over the next couple of weeks, with no technical barriers until the $4,300-4,350 range,” Kuptsikevich said. “However, this does not promise an easy ride, as market debt problems are rarely resolved quickly or on their own. We are almost certain that the European debt crisis will escalate, which could put pressure on gold, as it has been doing since the end of August. Furthermore, the dollar has probably merely taken a breather after four weeks of gains, but has not yet peaked. We therefore expect some further relief for gold next week, but significant challenges lie ahead in the longer term. Often, following elections, the dollar strengthens as political risks recede.”
Michael Moor, founder of Moor Analytics, expects gold prices to post further gains next week.
“HIGHER, unless we fail below the formation mentioned below,” he wrote. “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. “This is OFF HOLD. The break below 46369 brought in $545.7 of pressure. The break below 45886 projected this down $205 (+)—we attained $497.4. The trade below 44227 projected this down $65 min, $500 (+) max—we attained $331.5. The break below 43582 has brought in $267 of pressure. The break below 43043 brought in $213.1 of pressure, the break below 42820 brought in $190.8 of pressure, and the break back below 41949 brought in $103.7 of pressure; but I will no longer mention these. We held exhaustion at 41003 with a 40912 low and bounced $142.5. The trade above 41647 (-7.8 tics per/hour projects this upward $90 minimum, $175 (+) maximum—we have attained $69.0. The trade above 41784 (-7 tics per/hour) projects this upward similarly—we have attained $55.3. If we break back below either decently, look for decent pressure. A maintained gap higher will leave a minor bullish reversal.”
At the time of writing, spot gold last traded at $4,194.64 per ounce for a gain of 1.28% on the week and 1.47% on the day.
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