(Kitco News) - Gold was bumping up against all-time highs on Friday afternoon after prices held above $2,000 per ounce throughout the week. The precious metal also saw its first-ever monthly close above the 2k level, buoyed by positive inflation data and dovish comments from Fed members, supporting the growing belief that the long-awaited big breakout may come soon.
The latest Kitco News Weekly Gold Survey sees retail investors maintaining their optimistic outlook going into next week, while a slight majority of market analysts are also bullish on the yellow metal's near-term prospects.
Adrian Day, President of Adrian Day Asset Management, continues to maintain his neutral stance on gold, and he expects prices to be relatively unchanged next week. "Gold needs to digest the big run up in early October, and specifically from early November," he said.
"Gold is vulnerable here to negative developments in the near term," Day added. "But the odds are turning distinctly in gold's favor for a strong move over the next year and more as central banks reach the end of the tightening cycle even as the economies slip into recession."
Adam Button, head of currency strategy at Forexlive.com, said that rate cuts are coming, and the impact of the U.S. dollar on gold prices has also been extraordinarily strong, so its pullback should support the rally.
"The U.S. rates are at 5.50%," he said. "That's a lot of cutting compared to some other places. So you add that in, and you could get a 15% rally in gold just on U.S. dollar softness in the next two years. That's almost mechanical. And gold is already at record highs in many other places. And then technically, when it gets through that $2,100 range, it's blue skies."
He said this month's seasonal factors are bullish for gold as well. "This is December 1st, it's gold-buying day," he said. "December, January, February, that's the single strongest seasonal trade that I know of in terms of performance and consistency."
Some analysts are saying that gold is overextended and due for a pullback, but Button isn't buying it. "I love to hear that," he said. "Everybody thinks it needs to pull back. Because of that, I think it could just break out. And then you get FOMO… and then you get a real breakout."
Instead, Button believes gold is likely to pick up next week where it left off on Friday, flirting with its all-time highs. "I don't see why it wouldn't," he said. "Listen, data is critical right now. I think gold bulls will cheer for soft ISM, soft payrolls, that would be great. The U.S. dollar, clearly the tide's going out here. This Fed pricing [of rate cuts in March and May] has gone too far, but the Fed didn't push back, so what's going to change it? The blackout starts in 12 hours, there's no pushback coming. So why should that change now?"
This week, 15 Wall Street analysts participated in the Kitco News Gold Survey. Eight experts, or 53%, expected to see higher gold prices next week, while five analysts, or 33%, predicted a drop in price. Two experts, representing 13%, were neutral on gold for the coming week.
Meanwhile, 763 votes were cast in Kitco's online polls, and market participants remain as optimistic as they were over the last two weeks. 495 retail investors, or 65%, looked for gold to rise next week. Another 155, or 20%, expected it would be lower, while 114 respondents, or 15%, were neutral on the near-term prospects for the precious metal.
Wall Street
53%
33%VS
Main Street
65%20%Next week will be dominated by employment data with the release of U.S. JOLTS job openings on Tuesday, ADP private sector employment on Wednesday, the weekly Jobless Claims report on Thursday, and Nonfarm Payrolls for November on Friday. Markets will also be paying attention to the University of Michigan consumer sentiment survey and the ISM service-sector PMI.
Mark Leibovit, publisher of the VR Metals/Resource Letter, is still bullish on gold for the coming week owing to U.S. dollar weakness. "Giving the upside the benefit of the doubt so long as the US Dollar is in a downtrend," he said.
Ole Hansen, head of commodity strategy at Saxo Bank, said he sees gold trending lower next week. "Correction to $2010 before moving higher ahead of year-end," he said.
"We maintain a bullish outlook for gold into 2024 in the firm belief that rates have peaked and that Fed funds and real yields will start to trend lower," Hansen added. "However, with a great deal of easing already priced into the market, the chance of a straight-line rally is unlikely, and both silver and gold will continue to see periods where convictions might be challenged."
Everett Millman, Chief Market Analyst at Gainesville Coins, said he believes that gold prices will still get their seasonal bump on top of the recent rally.
"I tend to agree with the view that the positive seasonality is still going to play out," he said. "In each of the last six years we've had a ‘Santa Claus rally' for gold. I don't see that being any different, even though prices are really at the top of this range."
Millman said he actually doesn't see any strong headwinds against gold. "In fact, I'd point to economic data in the U. S. that has been pretty robust," he said. "We got an upward revision in GDP, third quarter PCE inflation came in somewhat softer, and gold continued to rally in spite of this. I think that if we were going to get a selloff in the gold price, it would have been in response to some of that strong data. The fact that we haven't, I think is extremely encouraging for the gold bulls, and it probably places a pretty strong floor of support beneath the gold price at that $2,000 an ounce mark."
Millman acknowledged that November is only the first monthly close above the $2,000 level, but said that gold's performance this week indicates continued strength. "Every time in memory that gold has ever traded above this level, it's had a pretty swift pullback below $2,000," he said. "So the fact that we haven't seen that yet, I think means that we should expect gold to continue to trade near the top of this range, and it should remain strong throughout December."
Millman agreed that what's really boosting gold prices right now is the recent shift in Fed rate expectations that was triggered by Fed governor Waller's comments earlier this week that he saw inflation trending steadily downward.
"Now, of course, it's possible that perhaps [markets] are getting a bit ahead of themselves," he said. "I wouldn't put it past the Fed to shift gears if they see changes in the data. But I think that rate cuts sometime in the first half of 2024 are now priced in. And although gold traditionally served as a hedge against inflation, my interpretation right now is that if inflation continues to attenuate, that just increases the chances and speeds up the timeline of when the next cut in interest rates comes, and lower interest rates are always positive for gold."
"Obviously, the Fed looms largest here, but I think that is something we're going to see as a global phenomenon, that policymakers worldwide will be able to lower interest rates sooner than expected," Millman said. "And that can only be positive for gold."
For next week, however, Millman expects a pullback, albeit a shallow one. "Just given recent history and my experience in the market, I would expect to see gold pull back a bit," he said. "Usually when there's a rally in gold, you get this mean reversion, you get some profit taking and prices can fall very rapidly. We certainly have seen that over the past few years when gold was hitting its lows. It pretty precipitously fell from the high 1900s all the way back down into the low 1800s."
He said he doesn't expect that to happen this time. "My base-case scenario is yes, we're probably going to get a pullback next week, but I think it'll be much more shallow relative to previous periods of downturns for gold over the past year or so."
Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, also expects gold to give up some of its recent gains in the coming week.
"I think both gold and the US Dollar had big moves in November and are due for a technical trading correction," he said. "Yesterday's Chicago PMI report indicated a stronger-than-expected US economy, which may reduce the chances of interest rate cuts coming as quickly as bond trading has been pricing in, which could take some of the pressure off of USD and take some of the wind out of gold's sails."
Marc Chandler, Managing Director at Bannockburn Global Forex, also believes gold is due for a pullback next week. "Falling yields and a weaker dollar helped lift the precious metal, but I think the market has gone too far," he said. "There is a more than a 50% chance of a cut in Q1 24 by the Fed. This seems too aggressive."
Chandler said he's expecting the U.S. dollar to extend the recovery it's been mounting in the last couple of sessions, which he believes is more than just month-end positioning. "I think a solid jobs report next Friday (median in Bloomberg's survey is up to 200k from 175k earlier this week) could see gold pull back toward $2006 and then $1992," he said.
Darin Newsom, Senior Market Analyst at Barchart.com, remains bullish on gold's prospects. "Based on Newton's First Law of Motion applied to markets: A trending market will stay in that trend until acted upon by an outside force, with that outside force usually investment money," he said. "Gold's short-term trend is up, though the market is overbought and in position for a possible double-top on its daily charts."
"Do investors have a reason to stop buying? As of now, no," Newsom said. "By next week? Maybe, but we have to go with what we see in front of us."
And Kitco Senior Analyst Jim Wyckoff expects gold prices to make further gains next week. "Steady-higher as near-term technical posture remains firmly bullish," Wyckoff said.
Gold prices had a standout week to end November and kick off the holiday season, with spot gold trading up 1.74% on the day on Friday, and gaining 3.45% since Monday. The precious metal last traded at $2,071.59 per ounce at the time of writing.
