(Kitco News) – Gold prices pushed higher this week, as fading expectations for a September Fed rate hike helped the precious metal extend its August rebound despite intermittent pressure from a firmer dollar, rising oil prices, and profit-taking.
Spot gold kicked off the week trading at $4,342.50 per ounce on Sunday evening, and the yellow metal moved steadily higher through Monday and Tuesday as traders positioned for the week’s U.S. inflation data. The rally accelerated Wednesday after July CPI came in largely in line with expectations, easing concerns that the Federal Reserve would need to tighten policy in September and helping gold prices push to a 10-week high. Spot prices ultimately set their weekly high at $4,450.23 per ounce on Thursday before sellers took over.
Gold prices pulled back sharply Thursday after softer wholesale inflation data reduced its appeal as an inflation hedge and prompted traders to take profits following the four-day rally. The metal remained under pressure into Friday as oil prices climbed on continued uncertainty around the war with Iran and Treasury yields also edged higher, with spot gold setting its weekly low at $4,311.22 per ounce early on Friday.
The decline proved short-lived, however, after Friday morning’s U.S. retail sales report showed an unexpected 0.6% drop, reinforcing expectations that the Fed would likely leave rates unchanged at its September meeting. Gold prices recovered into the close as rate-hike expectations faded, with the precious metal finishing the week modestly higher.
The latest Kitco News Weekly Gold Survey showed Wall Street experts overwhelmingly bullish on the precious metal’s prospects, while Main Street sentiment also held in firmly bullish territory heading into next week.
“Up, but modestly,” said Adrian Day, president of Adrian Day Asset Management. “The ongoing conflict between the prospects for higher rates on the one hand and weaker fiscal conditions on the other is keeping gold in a trading range, with very firm support on the downside, but not yet willing to rip higher.”
“Down,” said Darin Newsom, senior market analyst at Barchart.com. “Fundamentally speaking, nothing has changed with the gold market. Central banks continue to provide support while investment money ebbs and flows. Of the financial numbers released this past week, the one that stood out to me was the US defect growing by $432 billion during July, reportedly the largest monthly gap since March 2021. The bottom line is this should continue to reduce global confidence in the US dollar, putting pressure on the greenback, making real inflation an ongoing issue.”
“Riding this train of thought further, gold should find long-term buying interest,” Newsom said. “So why do I think the market could move lower next week? From a technical point of view, the December futures contract is in position to move into a short-term downtrend on its daily close-only chart. If so, it could see a selloff next week.”
“I like gold higher next week and look for a test on the 200-day moving average near $4503,” said Marc Chandler, managing director at Bannockburn Global Forex. “Gold has not been above it since the first week in June.”
“Up,” said Rich Checkan, president and COO of Asset Strategies International. “The rate of increase of both consumer and producer price inflation cooled slightly last month. Prices are still rising, but they are doing so more slowly. That, coupled with a net loss of new jobs and an increase in new jobless claims, has given investors a belief that the Federal Reserve will not increase interest rates at the September Federal Open Market Committee (FOMC) meeting.”
“Gold has surged on this latest data, bouncing strongly off the consolidation lows near $4,000 per ounce,” Checkan said. “The bias is clearly upward.”
Daniel Pavilonis, senior commodities broker at StoneX Group, told Kitco news that despite gold’s gains over the last two weeks, he doesn’t see the broader rally resuming just yet.
“I think energies are driving the narrative right now, and they seem to be range-bound,” he said. “Same thing with metals, it's pretty range bound. We got this bounce up in gold in the December contract. Looking at a continuous chart, it’s trapped above the 200-day moving average, but below the displaced 200-day moving average – which is a little bit longer term – it’s kind of range bound within that gap.”
The question now, Pavilonis said, is what’s going to be the catalyst for prices to move decisively higher – and data probably won’t cut it. “We need a flare up in geopolitics, some kind of kinetic situation that would spur gold demand in some way or another,” he said. “But in terms of the economic data coming out, it's not great, it's not bad. Inflation's kind of sticky… food prices are a little bit higher, but commodity prices across the board are not exceptionally high. We've seen higher highs plenty of times prior to this.”
“We need some kind of a driver here, and we're just not there yet,” Pavilonis said. “Obviously there's interest in the metals. You're seeing order flow going into the long side, but not like it was before, just back up the truck and load up on the stuff. The big catalyst would be something that would drive it to new all-time highs.”
“Are we just getting a corrective rally here? If it is a corrective rally, it's a very cautious rally.”
Pavilonis said this week’s data was positive on balance in terms of lowering rate-hike expectations, but he still sees the market addressing rates over the medium term rather than the Fed.
“The PPI report that we just saw was favorable to not raising rates, and the reality is that we're probably not going to raise rates,” he said. “What I think the market is really looking for is rates to go up by themselves, not for the Fed to try to do whatever it's doing. If you look at the curve, the 30-year is above 5%. That's telling. When all this stuff first started happening, when we were talking about lowering interest rates, the back and forth with Powell and all this other stuff, it was still relatively low. It was the front end of the curve that was moving higher. Now you're seeing the back end of the curve move higher. We're just trapped with so much debt.”
“I think you could be long metals, I think you could be long gold, but not overweight.”
What Pavilonis believes would really drive gold and silver higher is fear of runaway price pressures and/or currency devaluation.
“We're in a sideways market, but if inflation starts to turn up in a situation where people might start thinking about hyperinflation, I think you could see the metals really take off,” he said. “If we're talking about stockpiles moving around, or out of U.S. markets and moving it into other markets, it's stories like that I think really capture the headlines, that really start to move this stuff. Right now, I think you have the solid base of investment in the metals, but you don't have the GameStop-type of scenario we saw at the tail end of last year into the beginning of this year.”
Pavilonis warned, however, that on the technical side, gold could be forming a multi-month head-and-shoulders top.
“If the market does not make new highs here, it could possibly be another leg down… to $3,300, something like that. That's something to keep an eye on.”
This week, 10 analysts participated in the Kitco News Gold Survey, with Wall Street sentiment swinging massively bullish following the week’s supportive data and price action. Nine experts, or 90%, expected to see gold prices gain further ground during the week ahead, while only one, representing 10% of the total, predicted a price decline. None predicted sideways trading for next week.
Meanwhile, 222 votes were cast in Kitco’s online poll, with Main Street investors maintaining their two-thirds bullish majority after gold’s sustained move above $4,300. 150 retail traders, or 68%, looked for gold prices to rise once again next week, while 38 others, or 17%, predicted the yellow metal would lose ground. The remaining 34 investors, representing 15% of the total, expected to see consolidation during the week ahead.
Next week’s economic news calendar will feature U.S. manufacturing and housing data, with Wednesday's July FOMC minutes providing the clearest indication of how the Fed balancing persistent inflation against signs of slowing economic growth.
The data kicks off on Monday morning with the New York Empire State Manufacturing Index, followed by Tuesday’s publication of July Housing Starts and Building Permits, with Pending Home Sales coming later.
The week’s main event will likely be the Wednesday afternoon release of the FOMC minutes from the Federal Reserve's July 28-29 monetary policy meeting, which will be closely scrutinized for details on policymakers' views of inflation, economic growth and the appropriate path for interest rates.
Then, Thursday morning will see the release of weekly jobless claims, along with the Philadelphia Fed Manufacturing Index.
The week concludes with Friday morning’s Flash S&P Global Composite PMI, offering an early snapshot of August’s private-sector business activity.
James Stanley, senior market strategist at Forex.com, expects gold prices to build on this week’s positive performance. “Sticking with up, as there was a wide-open door for more profit taking this week and buyers are going into the Friday close with a really strong outing, so it doesn’t look like this current momentum breakout is finished yet.”
Adam Button, head of currency strategy at investingLive, told Kitco News that even though this week’s CPI and PPI reports sapped the rate-hike bid, he doesn’t think gold’s recent gains are being driven primarily by the data.
“What do I really think is driving it? I think it's the yen intervention,” he said. “It says a lot to me. America has officially had a strong dollar policy forever, and they've abandoned it. They're actively weakening their currency. Americans are at war with the dollar.”
“The Treasury Department obviously thinks it's a lever they need to pull. They're leaning on Japan to hike rates, and it looks like they're going to get their wish in September or so. But they want the dollar much lower. There are all these endless rumors about trouble in the Treasury market, and we saw this week again, a record for July, we're going to run a $2 trillion deficit.”
Button also noted yesterday’s sale of 30-year Treasuries, which demanded an extremely high yield. “It was the most since 2001. That's twenty-five years,” he said. “There's this fine line between higher yields and worrisome debt.”
Looking ahead to next week’s releases, Button said the minutes from the Federal Reserve’s July meeting will be more significant than they have been of late.
“In terms of FOMC minutes, it's a more interesting one,” he said. “Three dissenters. We don't know where a lot of the rest of them stand. It's going to be a market-mover. I wonder if it reads dovish… but it's always ‘a few, several members, a few members, most members’… you're reading between the lines.”
And while he believes gold is unlikely to see any sustained upside until the seasonals pick up later in the fall, Button said traders are growing more confident about the yellow metal’s near-term support.
“You feel a lot better about $4,000 on the downside, for sure,” he said. “Seasonally, you'll probably have to wait for November ‘til those flows really help. A lot starts to come together then. You can imagine there's some sort of resolution in Iran.”
“If it can hold above $4,300, I think you'd feel pretty good. Today's price action is the best signal so far this week.”
Alex Kuptsikevich, senior market analyst at FxPro, expects gold prices to climb higher next week.
“Having started the week by building on the upward momentum seen at the start of the month, the price of gold experienced a corrective pullback of $140 after touching $4,450 in the spot market and $4,500 on some futures contracts,” he said. “Nevertheless, buying picked up again towards the end of the week, confirming the short-term nature of the profit-taking following the technical break of the downtrend seen in previous months.”
“Gold clearly wants to take a breather following the rally at the start of August as it approaches an important resistance zone,” Kuptsikevich said. “The 200-day moving average (a key signal line for the long-term trend) is currently near $4,500. This level also previously served as significant support and is now viewed as resistance. To consolidate above this line, gold needs not only to clear the way upwards by resolving short-term overbought conditions, but also to receive a sufficiently reliable fundamental signal, which could come in the form of a further weakening of the US dollar coupled with a softening of the monetary policy outlook.”
Michael Moor, founder of Moor Analytics, expects to see gold prices rise next week.
“HIGHER,” he wrote. “In a Higher time frame: I cautioned on 8/16/18 the break above $1,183.0 warned of renewed strength. We have seen $4,443.1. These are OFF HOLD. We held exhaustion with a 56268 high and rolled over $1,1.1. 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 $553.7—if this holds and we start a bona fide bullish correction, the minimum target is 49636. This is OFF HOLD.”
“On a lower timeframe basis: In the (Z) we held exhaustion with a 40190 low and bounced $490.1,” Moor said. “The trade above 41192 has brought in $389.9. On 8/4 we left the minor bullish reversal—we have rallied $386.7 from the 41224 open. The break above 41389 projects this upward 80.00 min, 345.00 (+) max—we attained $370.2. On 8/5 we left a major bullish reversal—we have rallied $203.9 from the 43052 close. The break above 44170 (-3.6 tics per/hour) has brought in $92.1 of strength, but if we fail back below, look for decent pressure. A maintained gap lower will leave a minor bearish reversal.”
At the time of writing, spot gold last traded at $4,376.82 per ounce for a gain of 0.84% on the week and 0.59% on the day.
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