(Kitco News) – Precious metals traders rode a roller coaster of optimism and greed higher this week, as markets cemented expectations for a rate cut from the Federal Reserve at their September meeting. But gold prices may have pushed too high too quickly, with the ensuing pullback dragging the yellow metal right back to where it started.
Spot gold opened the week trading at $2,411.65 before moving down to test support near $2,400 per ounce shortly after 3:00 am early Monday morning. This level of support held, and it started the precious metal’s upward climb. After hitting an intraday high of $2,436 per ounce shortly after 11:00 am EDT on Monday, spot gold saw a retracement down to the $2,420 area following comments from Fed Chair Jerome Powell, which were dovish on balance.
Prices then began trending higher during the Asian session, and by Tuesday morning gold was trading above $2,440 per ounce. Prices saw a dip to the low $2,430s following the release of a slightly better-than-expected U.S. retail sales report for June, but they rebounded sharply thereafter, and by Tuesday evening spot gold had set a new all-time high above $2,482 per ounce.
Traders then turned their attention to the next Fed speaker on the docket, Christopher Waller, whose comments shortly after 9:30 am that “the time to lower the policy rate is drawing closer” appeared to confirm the market’s optimism for a fall rate cut. This drove spot gold to a fresh all-time high above $2,483 per ounce, but the yellow metal couldn't break decisively through resistance, and the sharp retracement that followed drove the price to an intraday low of $2,452 per ounce.
Asian and European traders once again boosted gold into the low $2470s, but after a higher-than-expected weekly jobless claims report on Thursday morning followed by a failure to break back above $2,470, spot gold began its long march lower, falling from $2,468.48 just before 11:00 am EDT on Thursday to Friday morning’s weekly low of $2,393.88 just before the North American market open.
Gold prices have continued to test the critical $2,400 per ounce level throughout Friday's trading session, but at the time of writing, spot gold had yet to see a decisive break below.
The latest Kitco News Weekly Gold Survey shows industry experts returning to a balanced stance, while retail sentiment remained optimistic about the coming week.
“Unchanged,” said Adrian Day, President of Adrian Day Asset Management. “Gold will likely need to consolidate before moving back up. Additional hints of the Federal Reserve starting its rate cutting cycle, however, could see gold up any time.”
Darin Newsom, Senior Market Analyst at Barchart.com, sees gold continuing to trend lower in the near term.
“I’m sticking with the idea gold remains in an intermediate-term downtrend on weekly charts,” Newsom said. “Looking at the more heavily traded December issue, a close below last Friday’s settlement of $2,469 would bring to an end the string of 3 consecutive higher weekly closes, fitting with a normal technical pattern. With weekly stochastics still neutral, meaning there is time and space for Dec futures to move lower, I’m looking for Dec24 to test its previous series of lows near $2,350.”
“Neutral,” said Adam Button, head of currency strategy at Forexlive.com. “The market impressively shook off the news that China has halted buying (at least temporarily) but the heavy profit-taking late in the week will be tough to reverse. Eyes are on US politics.”
“May have seen a double-top in gold,” said Mark Leibovit, publisher of the VR Metals/Resource Letter. “I have been cautious and occasionally hedging with inverse gold and silver ETFs. Risk is a near-term move down to 1900-2000, despite my longer term of 2700.”
“As always, taking it a day at a time,” Leibovit added. “Currently own NO precious metal positions, which were sold a few days ago.”
Analysts at CPM Group are recommending that investors stand aside next week, cautioning that the $92.7 price decline over the last two days “could potentially be repeated in the coming days or weeks, not only on the downside, but also on the upside.”
“Should prices settle below $2,400 today, Friday 19 July, liquidation selling on Monday could be heavy,” they said. “Or, with more bad political news the price could spike higher once again.”
CPM sees the price action for the next two weeks skewed to the downside, but the outlook is skewed to the upside after that. “In such a volatile environment, prices could move sharply either way, potentially testing $2,300 and possibly reaching $2,500 once more,” they said. “Any downside risk is likely to be short-lived, with investors using price softness as a reason to buy gold to hedge against the numerous risks.”
Bob Haberkorn, Senior Commodities Broker at RJO Futures, said that while Friday’s price weakness looked dramatic, it wouldn’t impact gold’s appeal in the medium term.
“The pullback we're seeing this morning is pretty significant,” he said. “But I think, news-wise, nothing's really changed. Bond futures are down, but the rates are pretty significant, they’ve come up a little bit here, and the dollar’s a little stronger.”
“I think what you're seeing here is just a liquidation of some of the weaker longs from the week, and it's overdone itself,” Haberkorn said. “I mean we tested $2,400, the low on the August [contract] was $2,395. I think overall it's just a shakeout of some of the weaker longs and concern about weakening demand out of China.”
Haberkorn doesn’t expect the yellow metal to stay down for long. “I think this move lower is going to be short-lived, and you'll see it as a buying opportunity,” he said. “There's no comment by the Fed that I saw on rates, or not doing a rate cut, that would justify this kind of move.”
“The geopolitical situation hasn't changed this week,” he added. “If anything, it's gotten even riskier on the geopolitical front, and with the U. S. election. And then there was news last night of some attacks inside of Israel along with the continuation of what's going on in Europe and the Ukraine.”
On the recent turmoil surrounding the U.S. election, Haberkorn said he doesn’t think a Biden withdrawal would materially impact precious metals.
“I don't think if he drops out, it would necessarily be a shock to anybody, or to the market, where it would impact gold prices or silver prices,” he said. “If there were, the shock would be the unknown. Do they go with Harris, or do they go into an open convention floor in Chicago in two weeks? There's unknowns there, but I think a lot of this is baked into the cake.”
Haberkorn sees the Fed and interest rate expectations as the main driver for gold right now. “I think If Biden drops out, it'll be a big deal, but I don't think it will be for gold. It's not going to be a game-changer in any direction.”
This week, 16 Wall Street analysts participated in the Kitco News Gold Survey, and the results showed a return to a balanced and uncertain outlook for the precious metal. Six experts, representing 38%, expect to see gold prices rise next week, while the same number predict a price decline. The remaining four analysts see gold trending sideways during the week ahead.
Meanwhile, 168 votes were cast in Kitco’s online poll, with Main Street investors remaining bullish but tempering their expectations compared to last week. 103 retail traders, or 61%, looked for gold prices to rise next week. Another 36, or 21%, expected the yellow metal to trade lower, while 29 respondents, representing the remaining 17%, saw prices trading within a range next week.
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