The gold price’s inability to rise convincingly above $2,000 creates a cautious atmosphere in the market. Some analysts say prices may need to consolidate in the near term before the precious metal breaks to new all-time highs.
Gold’s winning streak ends
Analysts do not want to sell gold short in this environment. Some say the price action has been disappointing as gold has not benefited from the sharp decline in yields and weakness in the US dollar. Gold, currently at $1,992, ended its three-week winning streak. Thus, it closed the week approximately unchanged from last Friday. However, prices are down about 1% from the opening gap at the beginning of the week.
Commodity analysts say waning fear in the market is hurting the safe-haven appeal of the precious metal. Therefore, they state that gold continues to be driven by global geopolitical factors. Although Israel’s war with Hamas continues, the conflict remains in Gaza, keeping the chaos in the Middle East under control.
Gold may continue to rise, but…
“The geopolitical crisis that fueled gold’s rally is fading,” says analyst Christopher Vecchio. Vecchio notes that a geopolitical event may give the gold market a tradable boost, but it does nothing to attract long-term investors. He emphasizes that a gold rally based on a specific geopolitical event must see continued climbing to maintain its safe-haven bid. Vecchio says he exited his gold position last week. He also states that he will remain on the sidelines in the near term as he expects prices to consolidate. In this context, the analyst makes the following statement:
Most of the great movement of gold has been completed. However, the fundamental backdrop of a weakening dollar and falling bond yields is positive for gold. That’s why I don’t want to short sell gold. I think gold can continue to rise. But it will be a frustrating uptick for potential investors.
The market needs consolidation!
David Morrison, senior market analyst at Trade Nation, describes gold as a market in search of a new catalyst. Ole Hansen, head of commodity strategy at Saxo Bank, says he is neutral on gold. He also states that a consolidation around current levels would be healthy. The neutral outlook comes after gold saw a rally of nearly 7% in October, its best monthly performance since March. Hansen comments:
After rising nearly $200 last month, gold has once again failed to break above $2,000 amid profit taking. The market, which has rallied so sharply in a short period of time, needs consolidation. But so far the correction has been relatively shallow. Additionally, support appears at $1,953, ahead of the 200-day moving average and $1,933, which is the 38.2% retracement of the said rally. On the downside, gold prices must fall to $1,900 for this new upward trend to be at risk.
The upside potential of the gold price will be limited
There will be very little economic data next week. Therefore, analysts say investors will continue to digest the Fed’s monetary policy decision. The Fed left interest rates unchanged for the second year in a row this tightening cycle. However, Fed Chairman Jerome Powell continued the tightening trend. Commerzbank commodity analyst Barbara Lambrecht comments on the latest developments as follows:
The Fed left the door open for a new interest rate increase. While we are confident that interest rates have already peaked, market participants will remain cautious. Assuming there is no further tension in the Middle East, the upside potential for the gold price is likely to be severely limited.
Next week’s data and events agenda
Gold markets will have the chance to hear more from Jerome Powell, who will attend a panel on “Monetary Challenges in the Global Economy” at a conference in Washington. The only major economic report next week will be the University of Michigan’s preliminary consumer sentiment survey. Last month’s revision of the survey surprised markets as one-year consumer inflation expectations rose 4.2%. That’s an outlier, Powell said during the press conference. He also dismissed that indicator, saying most consumer surveys show inflation expectations are “well anchored.”
- Monday: Reserve Bank of Australia monetary policy decision.
- Thursday: Weekly US jobless claims. Jerome Powell will speak on a panel.
- Friday: University of Michigan preliminary consumer sentiment.
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