(Kitco News) – Gold prices saw another wild week, as early bargain-hunting and safe-haven demand gave way to another sharp selloff after stronger U.S. data, sticky inflation, a firmer dollar, and rising Fed rate-hike expectations pushed the yellow metal back toward the $4,000 level, before a last-minute surge brought prices to the edge of $4,100.
Spot gold kicked off the week trading at $4,142.13 per ounce on Sunday evening, and the move carried gold to its weekly high at $4,220.82 per ounce on Monday morning, but the rally quickly faded as the U.S. dollar strengthened and markets continued to price in a more aggressive Federal Reserve response to inflation.
The selling accelerated Tuesday and Wednesday, with gold breaking below $4,100 and then briefly losing the $4,000 level as traders braced for Thursday’s U.S. data slate. Spot prices ultimately set the weekly low at $3,959.38 per ounce on Wednesday afternoon, after stronger Fed rate-hike expectations and technical selling overwhelmed residual safe-haven demand.
Gold attempted to stabilize on Thursday after the May PCE price index showed inflation rising 4.1% from a year earlier, while initial jobless claims fell to 215,000, reinforcing the view that the Fed still had little room to ease policy. Friday brought a stronger rebound as renewed tensions in the Strait of Hormuz pushed oil prices higher and revived some geopolitical demand, but the move was not enough to erase the week’s losses.
After failing to reclaim $4,100 decisively, spot gold finished the week trading around $10 from that level, seeing strong momentum into the close.
The latest Kitco News Weekly Gold Survey showed bears still the preponderant force on both Wall Street and Main Street, with a dwindling minority of both camps expecting gains next week.
“Unchanged, though ‘uncertain’ would be a better word,” said Adrian Day, president of Adrian Day Asset Management. “There are competing forces: the Iran conflict could erupt again, while the AI and tech sell-off may lead to a need for greater liquidity, particularly since margin debt is at all-time highs in the US stock market. Gold is the ultimate source of liquidity. In addition, the Federal Reserve is following other central banks in emphasizing the need to get inflation down.”
“On the other hand, the CPI numbers may decline over the next couple of months as lower oil prices feed into prices at the pump, and, even if only a temporary respite in inflation, would give the Fed and other banks a reason to not tighten monetary policy,” Day said. “Technically, we may see a retest of the mid-week lows before moving higher.”
“Sentiment remains cautious,” said Neil Welsh, head of metals at Britannia Global Markets, “but the broader backdrop still looks more like consolidation than capitulation.”
Darin Newsom, senior market analyst at Barchart.com, sees gold prices gaining ground next week.
“Why? Unless something changes over the weekend, fund money could continue to roll out of the Energies sector, looking for a new home,” he said. “Given global inflation is still a concern, leading central banks to continue buying gold, investors could start buying gold and silver again as well.”
“Technically, for what that’s worth, the August contract is oversold, possibly drawing the attention of algorithms,” Newsom added.
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “Psychological support at $4,000 seems to be holding… with technical support just a hair lower at $3,800. This sell-off was overdone weeks ago, and I fully expect both individual investors and central banks to be buying gold with both hands at these sale prices.”
Jesse Colombo, independent precious metals analyst and founder of the BubbleBubble Report, told Kitco News that the tide is beginning to turn for gold and silver, and the Treasury market is what to watch.
“In March, gold and silver were selling off because oil prices were rising, which was increasing inflation expectations,” he said. “But now oil prices have been sinking, and yet precious metals have also been sinking alongside oil.”
Columbo said the precious metals market hasn’t really caught on to what’s beginning to happen in Treasuries, but he thinks it’s only a matter of time.
“Inflation expectations are actually dropping again,” he said. “So I'm wondering if that's going to flow through into Treasuries, and they're going to rise, yields will drop, and that's going to provide some relief to precious metals.”
Columbo said he’s been watching a major support zone in gold between $3,900 and $4,100, which was formed by the October-November lows. “So far, it looks like gold has bounced off of that today, and for the last two days,” he said. “We had the somewhat benign PCE report yesterday, which provided some initial support, showing that inflation came in roughly in line with expectations, a little bit on the lighter side. And the dollar index is also pulling back a little bit today, so that's providing some relief to precious metals as well.”
“But I'm seeing gold bouncing off that support, which is a good preliminary sign,” he added. “I would like to see a solid close today over $4,100. If we can get a solid close over [that level], that would definitely help sentiment.”
Columbo said he’s actually nibbling on some long positions in gold futures.
“Gold is heavily oversold right now,” he said. “I think it's way overdone. It's not fair for gold and precious metals to get whacked this hard. I think it's unjustified, especially because I believe we're still in a secular bull market.”
“I believe there's going to be a nice rebound very soon.”
Columbo said the market has been overcompensating for the Fed’s supposed hawkishness for months now, and some of that will need to be given back.
“All the way back in late January, precious metals got hammered when Kevin Warsh was nominated,” he said. “And then it happened again last Wednesday after the Fed meeting. I think it's mostly priced in, and I think the market is overreacting to the hawkishness, just being overly cautious.”
Meanwhile, he noted that from a technical perspective, the ten-year Treasury note just broke out above a triangle pattern. “That means Treasury prices are going up, rates are going down,” he said. “The ten-year note, it's actually breaking out to the upside. You can see that they've been pricing in this hawkishness really since January, and now it's almost like a sell-the-news, or a buy-the-news, type event.”
“A lot of it depends on oil prices, of course,” he warned. “There's this element of uncertainty with geopolitics. But right now, my outlook is to be bullish on Treasury bonds and bearish on rates at the moment. That's my current outlook, and that should be supportive for precious metals.”
Looking ahead, Columbo said he sees the strength in gold and silver continuing next week.
“I like the fact that sentiment is so bad and it's so oversold, and yet now it's rebounding from those lows,” he said. “I'm interested in this trade, I like the direction it's going. Assuming we get a solid close over $4,100 in the futures, I see the momentum being to the upside, at least in the short term. And, assuming gold continues on from there, the next area I'm watching is roughly $4,100 to $4,600. That's overhead resistance now. I just want to see it prove itself through strength.
“Whenever you have something so oversold like this, there is that potential for a violent move to the upside, especially because we are not in a secular bear market in precious metals,” Colombo said. “We are still in a secular bull market. That's the reason why I view this correction over the past five months as being more of a mid-cycle correction rather than a true bear market or downturn.”
This week, 18 analysts participated in the Kitco News Gold Survey, with a plurality of Wall Street respondents remaining bearish as gold posted its fourth straight weekly decline. Five experts, or 28%, expected to see gold prices gain ground during the week ahead, while eight others, or 44% of the total, predicted a price decline. The remaining five analysts, representing 28%, saw the yellow metal trending sideways next week.
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