(Kitco News) - Gold continued its strong run this week amid the ongoing conflict in the Middle East, with the spot price topping out just below the $2000 level going into the weekend and the all-time high looking to be within striking distance in the not-too-distant future.
The latest Kitco News Weekly Gold Survey sees retail investors remaining very bullish on the yellow metal for the week ending October 27, while market analysts expect a pullback after this dramatic two-week surge.
Ole Hansen, head of commodity strategy at Saxo Bank, believes gold prices will come off their highs next week. "Lower," Hansen said, "not because the bullish drivers have disappeared but because the market needs to consolidate with resistance at 1985 offering such an excuse."
Daniel Pavilonis, Senior Commodities Broker at RJO Futures, believes gold prices will continue to be driven by geopolitics, and could break either way. "As things escalate, I expect it to move higher, but as things smooth out a little bit, I expect it to maybe come off," Pavilonis said. "I still feel like we're range-bound. We haven't necessarily broken out of this range, but it's definitely getting a lot closer to breaking out of the range."
Pavilonis said that if nothing dramatic happens over the weekend and into the start of the week, he expects gold prices to retrace and test recent support levels. "We had that hard bottom at 1822," he said. "I think if things start to reverse here, then we start getting back down to there. I would say the first point of support would be somewhere around 1940, and then breaking to somewhere around 1907, 1904."
He added that central banks will also be watching the gold market, and they're not happy when it moves up sharply like this.
"I think they look at it as a barometer of the major currency uncertainty and disruption to credit markets and everything else," he said. "As we start moving up this high at this quick of a pace, there's a higher expectation of shocks, whether it be geopolitics, economic shocks, or whatever. I think they'd want this market to unwind pretty rapidly. I don't think it's them in particular selling gold, but I think it could be they Iet it happen, if you will, instead of supporting the market."
"We're going to see more geopolitical volatility in the Middle East, and I think that would be supportive to gold," Pavilonis said. "We're close to the top end of the range; if we could break through this, then I think gold can go a lot higher. In terms of being up or down, I think we'll still be elevated next week… I think next week will be the tell-all."
Darin Newsom, Senior Market Analyst at Barchart.com, sees more gains for gold in the coming week.
"While Dec gold is sharply overbought on its short-term daily chart, Newton's First Law of Motion applied to markets holds true: A trending market will remain in that trend until acted upon by an outside force, with that outside force usually investment money," Newsome said. "As for now, it looks like the investment side of the market continues to view gold as a safe haven market ahead of an uncertain weekend in the Middle East."
This week, 13 Wall Street analysts participated in the Kitco News Gold Survey. Four experts, or 31%, expected to see higher gold prices next week, while six analysts, or 46%, predicted a drop in price, and three experts, or 23%, were neutral on gold for the coming week.
Meanwhile, 105 votes were cast in the X poll (the website poll had technical issues this week). Of these, 72 retail investors, or 69%, looked for gold to rise next week. Another 20, or 19%, expected it would be lower, while 13 respondents, or 12%, were neutral about the near-term prospects for the precious metal.
Wall Street
31%
46%VS
Main Street
69%19%The coming week will see the release of U.S. advance GDP for the third quarter, the durable goods report for September, the S&P Global Services and Manufacturing PMIs for October, the PCE report for September, and the Chicago and Richmond Fed surveys. Markets will also be paying attention to speeches from central bankers, including ECB President Lagarde and Fed chair Powell.
Adam Button, chief currency strategist at Forexlive.com, says gold and oil are doing exactly what you'd expect them to do under the circumstances, and both will remain sensitive to new developments in the conflict.
"On any kind of Middle Eastern uncertainty, there's always a bid in gold, oil and the U. S. dollar," Button said. "So far, the Middle Eastern trade has played right to script, at least in a broad sense. Oil's been bid, gold's been bid, and the dollar's been bid, although you would have maybe thought the dollar might have a little bit of a stronger bid to this point."
Button said that high bond yields have been holding gold prices back, and the stubborn optimism of the U.S. consumer and equity markets is the reason.
"I think the main driver of the bond market has been better growth expectations in U. S. economic data, week after week," he said. "They delude themselves into the idea that there will be a soft-landing scenario, but it's hard to square that with inflation getting all the way back to 2 percent, unless you keep rates at 5 percent indefinitely and watch the long end rise. Then you just try pricing a new normal with 8 percent U. S. mortgages, which just doesn't even work. And then you have to price in all these corporate business models that are based on cheaper debt, and so on and so forth."
He added that the relationship between gold and bonds has always been overstated. "I don't really know how much gold is competing with treasuries for buyers," he said. "I think that's what's really changed is that you have a number of the world's big central banks that appear to be less interested in treasuries and more interested in gold. It's increasingly likely that the defining moment of the decade was when the U. S. government cut off Russia from the financial system, and basically locked up its treasury holdings. That sent a message to a big part of the world that treasuries can't be depended on as a source of liquidity or in their traditional reserve function. And it drives an ongoing long-term bid into gold."
Looking at the near-term prospects, Button said he believes markets are already pricing in an Israeli incursion into Gaza. "I think the next trade in gold is probably to sell the fact when the ground invasion starts, assuming that it doesn't spread all the way to Iran," he said. "I'm a peaceful guy. I think this isn't going to be bombs falling in Tehran here by next weekend. I think the floor on gold is probably 1900, 1925 now."
Marc Chandler, Managing Director at Bannockburn Global Forex, also expects to see gold pull back a bit.
"Gold tacked on around $46.50 this week after almost $100 last week," Chandler said. "Geopolitics is the main driver, and it has bucked the otherwise dampening impact of higher rates. The dollar gave mixed impulses."
Chandler said that it's difficult to see the gold rally fading without some resolution to the situation in the Middle East, but the move still strikes him as excessive. "It has gone from testing the lower Bollinger Band (2 standard deviations below the 20-day moving average) to flirting with the upper Bollinger Band ($1982)," he said. "I recognize that $2000 is psychologically important and for short-term momentum traders (as opposed to the "buy ammo and canned food as WWIII is breaking out"), these levels may be attractive to take some off and look for a pullback to re-establish. Initial support may be near $1950 and then $1920."
Adrian Day, President of Adrian Day Asset Management, sees gold prices stabilizing at higher levels. "Gold will likely stay elevated while the Mid East tensions remain," he said.
Mark Leibovit, publisher of the VR Metals/Resource Letter, is bullish on the yellow metal. "Gold should breakout above the $2000 level this coming week," he said.
James Stanley, senior market strategist at Forex.com, expects gold prices to go down next week. "The bullish move has priced in so quickly and we're so near the 2k level that I think there will be some profit taking," he said. "We may see 2k trade next week and we may even see a net gain from this week's close; but on net, I like the asymmetry around pullback potential for next week."
"This doesn't mean that it's topped, however," he added.
And Kitco Senior Analyst Jim Wyckoff expects gold prices to continue their upward trajectory. "Higher, as charts have turned bullish and safe-haven demand is keener," he said.
Gold is currently up 0.36% on the session, and over 2.5% on the week, with spot gold last trading at $1,981.20 an ounce at the time of writing after hitting a high of $1,997.26 shortly before 12 pm EDT.
