(Kitco News) – Gold prices rebounded during another volatile week, as bargain-hunting and softer Treasury yields helped the precious metal recover from an early drop below $4,000 per ounce, even as stronger U.S. labor data, a resilient dollar, and persistent inflation risks capped the subsequent rally
Spot gold kicked off the week trading at $4,015.83 per ounce on Sunday evening, but the yellow metal quickly came under pressure as traders continued to price in higher energy costs, renewed U.S.-Iran tensions, and the risk that the Federal Reserve could keep policy restrictive for longer. The selling carried into Monday, when gold set its weekly low at $3,982.32 per ounce before buyers stepped back in near the lower end of the recent range
Gold recovered steadily through Tuesday and Wednesday as Treasury yields eased from recent highs and the U.S. dollar lost momentum, allowing prices to climb back above $4,100. The rally accelerated after traders looked past the European Central Bank’s decision to hold rates steady and focused instead on easing oil prices, which helped cool some of the week’s inflation concerns. Spot gold ultimately set its weekly high at $4,165.71 per ounce just before noon on Wednesday
The rebound faded Thursday after initial jobless claims dropped to 187,000, their lowest level in decades, reinforcing expectations that the U.S. labor market remains strong enough to keep the Fed focused on price stability. Gold broke back below $4,100 as the dollar firmed and traders trimmed exposure ahead of next week’s FOMC decision, even as lingering Middle East risks continued to provide some safe-haven support
After stabilizing Friday but failing to reclaim $4,100, spot gold closed the week at $4,051.51 per ounce, leaving the metal higher on the week but still stuck near the middle of its recent range
The latest Kitco News Weekly Gold Survey showed Wall Street bearish or undecided on gold’s near-term prospects, while Main Street sentiment remained improved after the yellow metal defended $4,000 support once again
“Sideways,” said Darin Newsom, senior market analyst at Barchart.com. “From a technical or fundamental point of view, I don’t see much reason for the December futures contract to break out of its daily close range between $4,048.70 (July 16) and $4,210.30 (July 22). From Watson’s point of view (algorithm-based trading), the 45-day moving average is well above the market (calculated at $4,297.40 Friday morning).”
“The last time Dec gold closed above its 45 DMA was March 16 ($5,150.30 to $5,148.00),” Newsom added. “Additionally, daily stochastics and implied volatility are both neutral heading into the weekend.”
“Up,” said Adrian Day, president of Adrian Day Asset Management. “Although cautiously optimistic, we are not out of the woods yet, with the possibility of the Federal Reserve raising rates even as China’s economy slows and stimulus measures are put in place. It is encouraging that gold is unchanged over the past seven days–-down then up–in the face of an intensifying conflict in Iran, a higher oil price and higher dollar, and expectations of Fed hikes before the end of the year jumping.”
“When an asset, any asset or market, does not drop in the face of negative developments, that is a bullish sign.”
“Unchanged,” said Rich Checkan, president and COO of Asset Strategies International. “We have two forces working solidly against each other here… oil over $100 per barrel and strong support at $4,000. After multiple tests of support at $4,000, I see that continuing to hold. But as long as the tensions in the Middle East keep oil prices and inflationary fears elevated, it will be difficult for gold to move significantly higher.”
“Brent crude crossing $100 has dealt a heavy blow to gold with the chain reaction now well established,” said Lukman Otunuga, manager of market analysis at FXTM. “Elevated oil prices are stoking inflation fears which have boosted Fed hike bets. This has led to a stronger dollar and rising Treasury yields – exposing zero-yielding gold to downside risks.”
“While prices may edge higher on technical forces, geopolitical tensions are likely to limit the scope for any durable gold recovery,” Otunuga warned
“Up,” said James Stanley, senior market strategist at Forex.com. “I know it’s easy to get bearish right now because sellers have so far jumped on bounces. But – that $4k level has held well so far with demand showing on tests below, and I think Central Banks, pension and hedge funds, larger players with longer-term scope, look at the matter and see this as opportunity.”
“With the Fed next week and some pain starting to show in equity pullbacks, I think we’ll see Warsh try to support President Trump by sounding less hawkish than what many expect,” Stanley said. “And longer-term, it’s not like we’re looking at austerity or balanced budgets anytime soon, so the bullish rationale for gold persists even with this temporary counter-trend backdrop.”
Colin Cieszynski, chief market strategist at SIA Wealth Management, told Kitco News that uncertainty surrounding price stability and the Middle East are creating a great deal of risk around any potential gold positions
“Gold had a massive run,” he said. “I think a lot of the war was priced in, but I don’t think the sell-down from $5,500 to $4,000 completely took all of the war out. It took some of the war concerns out, but not all of it. So it’s already elevated, and there’s concern this is going to have to raise rates.”
“I consider the inflation data to have been lagging, and I think you could see, in another month or two, inflation start to turn back up again if oil continues to rise,” Cieszynski said. “So based on that, we have the possibility that the U.S. dollar could start to go up, and that puts a headwind in front of gold.”
“We’re not at $3,000 anymore, we’re not at $5,500 anymore,” he said. “We’re somewhere settling in the middle. That’s why I’m now neutral on gold for the time being. I don’t know what it would take to get it going again, but I just feel like gold had such a huge run, and of course, it had a big pullback, and now it’s got to sort itself out. And that could take three to six months.”
Cieszynski said he doesn’t expect the gold market to move very far in either direction around next week’s Fed rate decision
“I just think it’s the middle of summer and we’ve had quite a bit of volatility,” he said. “There’s going to be a lot of earnings coming out. I don’t think that the Fed wants to make waves. I don’t think anybody wants to make waves in the middle of the summer this year. I think they’re just trying to sort it all out.”
Cieszynski thinks gold prices will likely remain within their recent channel between $3,960 and $4,170 per ounce through next week
“Unless the Fed surprises me, which I don’t think they’ll do.”
This week, 18 analysts participated in the Kitco News Gold Survey, with Wall Street sentiment solidly bearish and uncertain after gold’s own indecisive performance. Four experts, or 22%, expected to see gold prices gain ground during the week ahead, while seven others, representing 39% of the total, predicted a price decline, and another seven saw the yellow metal continuing its sideways churn next week.
Meanwhile, 249 votes were cast in Kitco’s online poll, with Main Street investors turning more bullish after gold’s $4,000 support level held once again. 147 retail traders, or 59%, looked for gold prices to rise next week, while 48 others, or 19%, predicted the yellow metal would lose ground. The remaining 54 investors, representing 22% of the total, expected to see further consolidation during the week ahead
After one of the slowest economic news weeks of the year, next week promises significantly more substance for markets, including the July rate decisions from the Federal Reserve, the Bank of England and the Bank of Japan, consumer confidence, and the first look at Q2 GDP
The first significant release of the week will be Tuesday morning’s Consumer Confidence report for July, after which traders will turn their attention to Wednesday afternoon’s Federal Open Market Committee rate decision and press conference
Then Thursday morning will bring the Bank of England’s monetary policy decision, followed by US Q2 Advance GDP and PCE and weekly jobless claims, with the Bank of Japan monetary policy decision coming overnight
The week wraps up with the Friday morning release of revised University of Michigan Consumer Sentiment for July
“Gold has not proved itself,” said Marc Chandler, managing director at Bannockburn Global Forex. “The mid-week bounce to $4166 basis spot was sold into and gold is finishing the week below the 20-day moving average (~$4068). Rising global interest rate and firm US dollar are headwinds.”
Kevin Grady, president of Phoenix Futures and Options, told Kitco News that with oil prices, yields, rate expectations and equities all unsettled, the smart money is still sitting on the sidelines
“Right now, the short-term trend is in flux because we have this situation with Iran, so energy prices are all over the place,” he said. “But you saw what happened yesterday with Alphabet. Everybody was just afraid of their CapEx, but if you look at just their earnings alone, they made a ton of money.”
“I think earnings are good. I think economic data is good. So I think overall the economy is good,” he said. “I just think that right now, no one knows what’s going to happen.”
Grady said that everyone is still out of the market because of the prevailing uncertainty. “Every single move is exacerbated because there’s less people trading, there’s less volume,” he said. “People are just risk-off. Everyone’s in risk-off, all the traders are in risk-off. Obviously the algos are in there, and they enjoy this environment. But no one really wants to play, because you just don’t know.”
“Who’s going to put on a position over the weekend? And what’s your rationale for doing so? It’s a coin toss,” Grady added. “It could get better, it could get worse, but it’s a coin toss. And I don’t think anybody, especially the larger institutions, no one is trading based on coin tosses. So everyone’s remaining flat.”
Grady said the only real activity in futures markets is coming from traders rolling over their positions as the front-month contract moves from August to October
“They have until the end of next week,” he said. “A lot of times what happens is people have a gun to their head: You want to roll this position, you want to pay to roll this position? Do you love it? Or do you just want to liquidate, reassess, and see where it goes? That’s part of what’s putting a little bit of pressure. But right now, with rates all over the place, it’s just a situation where people are in risk-off, and they just don’t want to touch it.”
Grady reiterated that the important thing to watch on any significant price move – whether up or down – is the volume
“If the market is up $100 on 600,000 volume, that matters,” he said. “If the market is up on 80,000, it just means there were some buyers in there and the algos just ran the market up. I think that’s the key.”
“No one wants to take a shot. No one wants to be a hero,” Grady said. “Right now, everybody’s in risk-off mode waiting to see some more clarity on the Iranian situation and from the Fed.”
Alex Kuptsikevich, senior market analyst at FxPro, expects gold prices to decline next week
“Gold jumped 4% midweek after another dip below $4,000, further confirming the strength of support during pullbacks,” he said. “The rally proved short-lived, as a strengthening US dollar and rising yields on long-term US government bonds drew sellers back into the commodities market. Nevertheless, a significant battle is unfolding that will determine the market’s future trend. We suspect China was a major buyer during the dips, with purchases intensifying in May and June. This is entirely in keeping with China’s approach of building up its reserves when prices fall significantly and reducing them when they rise. The big question is how strong the appetite for gold is in China and other emerging, export-oriented countries, which have been keen to buy gold over the last couple of years.”
“Gold selling is now largely concentrated in developed markets, where rising long-term government bond yields in the US, Japan and elsewhere are reducing investor appetite for the precious metal,” Kuptsikevich noted. “These sellers also have substantial rer side has established dominance: the horizontal support level during dips below $4,000 held, but the local high following the rebound was lower than the previous one.”
“For now, we continue to regard a price decline to the $3,300–3,500 range as the main scenario,” he added. “However, the bulls showed enough persistence in pushing above the trend line last week that this strength cannot be ignored.”
Analysts at CPM Group issued a Buy recommendation on Thursday when gold was trading near $4,068 per ounce, with an Initial Target Price of $4,220 per ounce between July 23 and August 4 and a Stop Loss at $3,980
“Gold prices remain in a short-term downward trend that extends from their late January record peak to today,” they wrote. “CPM has had a Gold Sell Trade Recommendation in place, but that was stopped out by the recent short-term strength in gold prices.”
CPM analysts said they still expect gold prices to drop between now and late August, but they are issuing an ultra-short-term Buy recommendation for three main reasons:
First, “Political and military issues related to the U.S. attacks on Iran, Iran’s attacks on shipping through the Strait of Hormuz, the spread of this to the Houthis’ attacks on ships in the Bab-el-Mandeb strait at the mouth of the Red Sea, worsening conditions in that war, sharply rising oil prices, domestic U.S. political hostilities, and more are raising risks and uncertainties for the economy and financial markets,” they said
The second reason is the fast-approaching delivery period for active August Gold Comex futures. “There remain 20.2 million ounces of open interest in the August contract,” the analysts said. “Around 12.7 million ounces have been rolled into the December futures contract and another 3.1 million into the October contract, but the remaining 20.2 million ounces remain to be dealt with – either buy being rolled forward, bought back outright, of delivered when August becomes deliverable. Most of this is likely to be rolled forward over the next two weeks. This could push gold prices higher during the next two weeks, followed by prices declining once more should political and economic conditions permit.”
And third, they see gold prices approaching a critical downward technical trend line. “A break above this could lead technically oriented investors and computers to buy gold, which could push prices higher,” they said. “All of these factors could lead to higher gold prices over the next two weeks.”
“Again, depending on the course of political and economic developments prices might resume their decline in August,” they said. “CPM continues to expect gold prices to rise beyond August.”
Michael Moor, founder of Moor Analytics, expects to see gold prices rise next week
“Lower UNLESS we break decently above 40634 (-5 tics per/hour starting at 12:20am EST)—above which I would look decent strength, possibly for days—a ‘decent’ penetration is $19.6 until the close,” he said. “In a Higher timeframe: I cautioned on 8/16/18 the break above $1,183.0 warned of renewed strength. We have seen $4,443.1. This is ON HOLD. We held exhaustion with a 56268 high and rolled over $1,651.1. This is ON HOLD. On a medium timeframe basis: The trade below 52554 projected this down $740 (+)—we attained $1,300.0. The trade below 52036 brought in $1,248.2 of pressure. The trade below 51606 brought in $1,205.2 of pressure. These are ON HOLD. We held exhaustion with a 49177 high after a pullback and rolled over $962.3. The break below 48185 projected this down $185 (+)—we attained $863.1. The trade below 47923 projected this down $205 (+)—we attained $836.9. The break below 47420 brought in $786.6 of pressure. On 5/15 we left a medium bearish reversal—we have come off $597.8 from 45532. We held exhaustion with a 44036 high and rolled over $448.2. On 6/18 we left a minor bearish reversal—we have come off $323.9 from the 42793 open. These are ON HOLD. We held macro exhaustion with a 39554 low and bounced $260.1—if this holds and we start a bona fide bullish correction, the minimum target is 49636. This is ON HOLD.”
“On a lower timeframe basis: We held exhaustion at 41795-2324 with a 42155 high and rolled over $252.5,” Moor said. “This is OFF HOLD. We held exhaustion with a 39630 low and have bounced $208.4. The trade above 40260 (+.5p/h) has brought in $145.4. The trade above 40296 (-6.5p/h) brought in $141.8. These are ON HOLD. Yesterday we left a minor bearish reversal—we have come off $56.5 from the 40805 open. The break below 40797 (-5 tics per/hour) has brought in $55.7 of pressure.”
At the time of writing, spot gold last traded at $4,052.84 per ounce for a gain of 1.43% on the week and 0.08% on the day
Ernest Hoffman
Ernest Hoffman is a Crypto and Market Reporter for Kitco News. He has over 15 years of experience as a writer, editor, broadcaster and producer for media, educational and cultural organizations. Ernest began working in market news in 2007, establishing the broadcast division of CEP News in Montreal, Canada, where he developed the fastest web-based audio news service in the world and produced economic news videos in partnership with MSN and the TMX. He has a Bachelor’s degree Specialization in Journalism from Concordia University. You can reach Ernest at 1-514-670-1339.
Kitco News Weekly Gold Surveygold price forecastFederal Reserve monetary policy decisionIran
Share
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
