Wall Street grows cautious on gold, Main Street remains optimistic about further gains
NEW YORK (October 5) Gold prices teased both complete collapse and fresh all-time highs this week amid Middle East escalation and U.S. job creation, but as the dust settled on Friday afternoon, market participants saw the yellow metal sitting almost exactly where it had begun, as upside and downside pressures combined to cancel one another out, at least in the near term.
Spot gold kicked off the week trading at $2,661.81 per ounce, and after a brief move higher, it began a steady descent, which carried through the European trading session and into the North American open.
By around 2:00 p.m. Eastern on Monday afternoon, gold had slid all the way to $2,626.89 per ounce, and plenty of bulls were losing their nerve. But this level proved to be the weekly low, as spot gold began to climb thereafter.
Tuesday morning brought reports that Iran was preparing an imminent attack on Israel, and this added rocket fuel to the yellow metal’s move, with spot gold turning positive on the week just after the North American open and hitting what turned out to be the weekly high of $2,671 per ounce just after 1:00 p.m. Eastern as images of ballistic missiles breaking up over Tel Aviv were being broadcast.
From there, spot gold began a sideways chop between $2,641 and $2,660 per ounce, which lasted until late Thursday evening when the yellow metal once again made a run at $2,670. The bulls ran out of steam, however, and spot gold slid back down to the $2,660 range as traders turned their full attention to the U.S. nonfarm payrolls report for September.
The report ended up being a blowout, with job growth in the United States beating expectations by over 100,000 positions during the month, and the unemployment rate ticking down to 4.1%. This completely erased the 30% expectation of a 50 basis point cut at the next Fed meeting, and also served to drive the gold price from $2,657 in the minutes prior to the 8:30 a.m. Eastern release all the way down to $2,632.01 just 15 minutes later.
But the precious metal’s bounce proved even more dramatic, as it spiked to within a dollar of the weekly high by 11:00 a.m. Eastern, before retracing nearly all of its gains and settling into a narrower range to trade between $2,645 and $2,651 per ounce for the remainder of the North American trading session.
The latest Kitco News Weekly Gold Survey showed industry experts growing cautious about gold’s near-term prospects, while retail investors remained optimistic but to a slightly lesser degree than the prior week.
“I am neutral on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “Today’s Nonfarm Payrolls report has boosted US treasury yields and USD as it suggests a steady or moderate pace to future interest rate cuts. Normally, this would be enough to make me outright bearish on Gold, but there is so much turmoil in the world right now and with the US election only a month away, I think volatility and uncertainty could provide some support.”
“Unchanged,” said Adrian Day, president of Adrian Day Asset Management. “With Chinese buyers returning after their four-day holiday, we may see some renewed buying. But after such a strong two-month run, gold is due for a pause, and the U.S. jobs report today may be the proximate cause. I do not expect a long or deep pullback, before the fundamentals reassert themselves.”
Jesse Colombo, independent precious metals analyst and Founder of the BubbleBubble report, is neutral on gold as prices trade between $2650 and $2,700, but still thinks the dips should be bought.
“Up,” said James Stanley, senior market strategist at Forex.com. “Bulls still aren’t letting go. USD put in a massive move this week and it was only a moderate pullback in gold prices. Unless or until the Fed relents from rate cut plans, there’s still a bullish fundamental argument in gold, even at overbought conditions on both monthly and weekly charts.”
Sean Lusk, co-director of commercial hedging at Walsh Trading, was mulling the implications of Friday morning’s nonfarm payrolls report on the U.S. economy and on gold prices.
“It should mean that maybe they slow down the rate of rate cuts,” Lusk said. “You're 100,000 better [than expectations], surprisingly strong leisure and hospitality… health care and social assistance, that's more government, though private-sector was a little bit better.”
“It's probably suggesting that we're not going back in recession, although I don't know if anybody really thought that,” he said. “It's hard to know how they compile this data, so the naysayers are going to say, ‘There's an election, and they're going to try to paint this as rosy as possible.’ But the Fed rules here, as does the 10-year, and why would the Fed be hell-bent on cutting six times, if the jobs market isn't as much in peril as what was previously thought?”
Lusk said that geopolitical tensions have pushed gold up, and nobody wants to be short the yellow metal with the prospect of an Israeli response to Iran’s ballistic missile attack.
“It's Friday going into weekend,” he said. “I don't think anybody's going to be overly short energy either, but we’ve gotten a rebound here in the dollar, which is pressuring commodities to a certain extent.”
Looking at the morning’s price action in gold, Lusk said algorithmic traders drove the sharp selloff in the immediate wake of NFP, and then the humans stepped in to bid it right back up again on geopolitics. “The algos read it, and you get the big drop, and then you stabilize, then ‘Oh, wait a minute, there's a pending war in the Middle East, and this is happening, that's happening,’ so they bring it back up. Now you're on the defensive again.”
“In theory, we should drop further,” he added, “but that drop may not happen until next week. We'll see what happens, but should there be a nothing-burger by early next week, then you could see gold get smoked here.”
Lusk said it would be more of a profit-take and a retracement. “We've hit 30 percent higher on the year, and extended above it, above $2,700,” he said. “But we could just as easily pop right back down to $2,570, $2,575, $2,580, that area before it's all said and done. If you're going to sustain a rally in the dollar because of better job growth, which [supports] a less accommodative stance by the Fed, and you don't, and the geopolitical thing slowly moves out of the news cycle, which we've seen prior, then what are you holding on your hat to? You're going to take profits.”
“We're 10 lower, but we're still at 2668,” he said. “But you start taking out new lows here, this thing could fall quickly. There's a lot of longs in this market. But I don't think that happens in full until next week.”
This week, 16 analysts participated in the Kitco News Gold Survey, with only a minority of Wall Street seeing price gains in gold’s near-term future. Seven experts, or 44%, expected to see gold prices rise during the week ahead, while another three, or 19%, predicted a price decline for the precious metal. The remaining six analysts, representing 37%, believe gold will trade sideways or choose to sit on the sidelines next week.
Meanwhile, 176 votes were cast in Kitco’s online poll, with the majority of Main Street investors still expecting gold to post further gains despite its recent stall. 104 retail traders, or 59%, looked for gold prices to rise next week, while 36, or 20.5%, expected the yellow metal to trade lower, and another 38, representing the remaining 20.5%, saw prices continuing to consolidate during the week ahead.
Next week’s economic news calendar isn’t particularly busy, but investors will still be paying close attention to the U.S. Consumer Price Index for September, which is slated for release on Thursday morning. Market participants will be looking to see if inflation pressures continued to wane, which would support the Federal Reserve’s easing cycle.
Other highlights include the Wednesday afternoon publication of the minutes from the Federal Reserve’s last monetary policy meeting, Thursday’s weekly jobless claims report, and the U.S. Producer Price Index and University of Michigan preliminary consumer sentiment on Friday morning.
Marc Chandler, managing director at Bannockburn Global Forex, sees gold prices sliding to start the coming week.
“I like gold lower in the first part of next week, maybe potential toward $2580-$2600,” he said. “The impact of the US jobs data will linger for a few days. At the end of next week, the focus turns to inflation, and a softer headline inflation report may ironically support gold.”
Chandler said that fears of an escalation in the Middle East also lend gold support. “Chinese markets re-open Tuesday and given the rally in stocks, the equity market may sap some of the retail demand for gold,” he added.
“Up, said Darin Newsom, senior market analyst at Barchart.com. “Technically, gold looks to be running out of upside momentum short-term. However, given the latest ploy to disrupt the US economic and political situation by one of the US presidential candidates and his allies fell apart, in this case, the port strike, global investors know the next attempt could happen this coming weekend. Therefore, gold - as a safe-haven market - should continue to find buying interest.”
Mark Leibovit, publisher of the VR Metals/Resource Letter, still believes the market has hit a short-term cycle peak.
“I'm not aggressive here,” he said. “I've been hedging on the short side a little bit as well, on and off, but I was looking at about a $2,700 target and we got pretty close. I just think we may have run out of steam here a little bit, short-term.
“Cyclically, we may have exhausted the time for further advance, but I’m not a bear, I’m just cautious here,” Leibovit added. “I’m not adding positions, and I had a couple of hedges on inverse gold and silver ETFs. I'm keeping the core long positions. I'm not out of the market, but I just feel like I wouldn't be establishing new long positions here.”
Leibovit said he doesn’t subscribe to the view that a stronger dollar will necessarily mean lower gold prices. “I'm in a whole different camp with the dollar and gold,” he said. “I think the dollar and gold go up together, I don't think there's an inverse relationship. I think when central banks are out there acquiring gold, they have to do it in dollars, and that drives the dollar up. I'm in the bullish dollar and gold scenario until we get an eventual blow-off in gold, wherever that number is. Whether it's $3,000, $5,000, whatever the eventual top is, the dollar should remain strong during that period and maybe after that.”
Leibovit believes that the market is rallying for two primary reasons. “One, you've got the perception that lower interest rates are bullish,” he said. “I don't necessarily agree with that, it can mean that the Fed's seeing a recession ahead and they're trying to be proactive. But the street feels that's bullish, so I'll give them credit for that.”
“I think the bigger motivation for the market going up is the acts on the part of China,” he said. “They’re becoming more aggressive and playing with the money supply over there and changing their fiscal and monetary direction. I think that’s a big boost to the market and going forward. It makes me a little less bearish about the market, if China is going to be involved, which was a drag pretty much the world economy for many months.”
“I think between the perception of lower interest rates on the part of the Fed and the action of China, [those are] more bullish for the markets than any of the government statistics that you're going to be hearing about.”
Leibovit did caution that it’s only early October, and there could still be surprises in store. “We still have the war in the Mid-East, and we’ve got the election,” he said. “Who knows what's going to happen the first week of November? There still could be some volatility in the market over the next 30 days, so I wouldn't be sticking my neck out too far in any markets right here.”
Leibovit added that the BRICS summit is also coming up at the end of October, and it represents another risk for the gold market.
“They want to add back gold with the new currency,” he said. “They’re meeting in Russia, and of course Putin is a big buyer of gold himself, and a big supporter of the organization. That's why I'm not selling gold. I'm just hedging a little bit here, not chasing it. But that certainly is an ingredient to hold it up here.”
Michael Moor, Founder of Moor Analytics, said the technical picture still suggests gold is headed lower in the near term.
“The trade below 26795 now warns of pressure--we have seen $27.9, and the trade below 26686 (+3.5 tics per/hour) projects this downward $21 minimum, $43 (+) maximum,” Moor said. “But if we break back above where this comes in at 26688 (+3.5 tics per/hour starting at 9:20 am EST), look for decent strength to come back in. Decent trade above 26788 (-2 per/hour starting at 9:20 am) will project this upward $28 minimum; but if we break above here decently and back below decently, look for decent pressure.”
And Kitco Senior Analyst Jim Wyckoff sees gold prices following Middle East tensions higher next week. “Steady higher on safe-haven bidding amid keen geopolitical uncertainty,” he said.
At the time of writing, spot gold last traded at $2,650.87 per ounce for a loss of 0.20% on the day and 0.41% on the week.
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