(Kitco News) – Gold enjoyed one of its best five-day stretches of the year this week, and ended with a bang, rocketing to fresh all-time highs in both the spot and futures markets.
Spot gold kicked off the week trading at $2,429.49 per ounce, before moving sharply higher during the Asian and European sessions. North American traders then picked up right where their Eastern counterparts left off as gold rallied into the U.S. stock market open, trading at $2,452.10 at 9:30 a.m. EDT and continuing the upward momentum to top out at $2,476.30 by 8:00 p.m. Monday evening.
The yellow metal then took a one-day breather, trading in a channel between $2,458 and $2,478 per ounce until Wednesday morning’s U.S. data took the wind out of its sales, with spot gold declining to a daily low of $2,440 per ounce shortly after 1:30 p.m. EDT. After trading as high as $2,467 in the early evening, spot gold was once again smacked down below $2,440 at 9:00 p.m. EDT, but it quickly returned to the middle of its recent range.
The stage was now set for one of the yellow metal’s sharpest single-day gold rallies outside of a geopolitical crisis, as gold rocketed through multiple levels of resistance during the overnight, rising from $2,452.63 just after 3:00 a.m. EDT to $2,494.07 at the North American open. And after a brief dip back to 2481, it was off to the races once again, this time driven by a disappointing U.S. housing starts report.
Spot gold first breached the $2,500 per ounce level shortly before 10 am EDT, just half an hour into the North American trading session and less than 90 minutes after the downbeat housing data was released.
After pulling back as low as $2,479 per ounce, the yellow metal resumed its steady march higher, breaking definitively above $2,500 just after 2:30 pm EDT.
The latest Kitco News Weekly Gold Survey shows a clear majority of industry experts and retail investors believe gold prices can push beyond this week’s all-time highs.
Mark Leibovit, publisher of the VR Metals/Resource Letter, sees no reason to doubt the yellow metal in the near term, and believes silver could also post gains next week. “Have to give the upside the benefit of the doubt for both gold and silver,” he said.
“Unchanged,” said Adrian Day, President of Adrian Day Asset Management. “At record highs, there is potential for economic news or Federal Reserve officials to dampen the enthusiasm for multiple rate cuts this year, starting next month, and that would see a pullback in gold. But it would only be very short term. The odds still favor a Fed cut in September, adding to the cuts we have already seen at many banks around the world, and the longer-term direction for gold is certainly up.”
Marc Chandler, Managing Director at Bannockburn Global Forex, sees consolidation for the yellow metal in the near term before it sets new all-time highs.
“Gold is range bound near record highs,” he said. “I don’t think the yen carry trade is back in vogue, but instead a broader dollar weakening move. That is supportive for gold. Also, despite stronger US retail sales and 5-week low in weekly jobless claims, 10yr Treasury yields are essentially flat this week.”
Chandler is also looking ahead to Fed chair Powell’s speech at Jackson Hole next Friday. He is likely to frame next month’s cut as not easier monetary policy but rather less restrictive,” he said. “I expect the consolidation in gold to ultimately be resolved with new highs.”
“Down,” said Darin Newsom, Senior Market Analyst at Barchart.com. “I could be jumping the gun with this one, but from a technical point of view Dec24 gold is overbought and possibly nearing a Wave 5 peak of its short-term 5-wave uptrend (Elliott Wave).”
“Early Friday morning the contract’s daily chart is showing a potential double top pattern with the previous high of $2,537.70 (week of July 15),” Newsom added. “This will be a key price as the market makes its way toward the weekend.”
Bob Haberkorn, Senior Commodities Broker at RJO Futures, was looking at the price action on Friday morning as the bulls were fighting to keep the $2,500 level.
“I think it’s a little overstretched here right now, in the short term,” Haberkorn said. “I think earlier in the weekend, maybe in this session, you might get a little bit of a pullback [in futures] to try to get back to $2,500.”
“Now that we took out such a big level here, I’m sure there’s money on the sideline that wants to get in, and it’s going to wait for a pullback.”
Haberkorn said that Friday morning’s housing data was so bad that it drove market expectations even higher. “It really amped up this market, the increased likelihood for rate cuts coming in September,” he said.
“Next week, now that we’re around $2,500, I think you’re going to have sideways action,” he added. “I don’t see us going up to $2,600. I don’t think we’ve got the legs for that yet. I think eventually we will, after we get past our first rate cut, but expect it to be a little sideways here into next week.”
Haberkorn said the market will get its cut, but the traders predicting half a point are getting ahead of themselves. “I don’t think the Fed can move too fast and do a [50-basis-point] cut, because the inflation numbers have come down a bit, but they still are pretty high by normal standards,” he said. “I think a lot of this is fear-driven, around a recession and also with the position the Fed is in, if they lower too fast, inflation will come back. You won’t see it immediately, but you will get higher inflation. I think right now, the fact that the Fed is in a bind, it feels like, has traders pushing gold up to new highs.”
“There’s so much pressure on them to start cutting, but inflation is still here,” he added. “Stuff still is pretty expensive if you go out there. Yes, the data’s showing some lower numbers, but I don’t know if the job is done. I don’t think they know if the job is done. But there’s so much pressure on them to start cutting, because now we’re starting to see cracks in employment, as well as the housing numbers out there, and it’s a bad position to be in.”
“What they’re signaling right now, I think, shows that they’re in a bad position.”
Haberkorn believes that the $2,500 level on the December contract, or very close to it, could become support. “$2,580 all the way down to $2,485, with good support levels for the time being,” he said. “Where we’re trading at, I could see us giving back a little more here. I think it’s going to be hard to attract new buyers, for new buyers coming to this market at such an elevated level,” he said.
“The market should continue upwards and be bullish, it’s just hard to buy it up north of $2500 at this point, after we just broke it,” Haberkorn added. “I think that’s why next week you’ll see sideways to lower action in gold.”
This week, nine analysts participated in the Kitco News Gold Survey, with the majority of Wall Street still seeing potential for gains above this week’s all-time highs. Five experts, or 56%, expect to see gold prices rise during the week ahead, while three analysts, or 33%, believe gold will consolidate its gains next week. Only one, representing 11% of the total, predicted a decline in price for the precious metal.
Meanwhile, 219 votes were cast in Kitco’s online poll, with the breakdown of Main Street investors similar to that of the experts. 130 retail traders, or 59%, looked for gold prices to rise next week. Another 44, or 20%, expected the yellow metal to trade lower, while 45 respondents, representing the remaining 21%, saw prices trending sideways during the week ahead.
After a data-intensive five days, next week promises less in the way of economic news events, though the few there are will likely move markets. The Fed’s Darren Waller will speak Monday morning, with Bostic and Barr chiming in during the day on Tuesday. Wednesday morning will see MBA mortgage applications for the week ending August 16, along with the release of the FOMC minutes from the July meeting.
Thursday morning, markets will receive initial jobless claims and the S&P global manufacturing and services PMIs for August, along with U.S. existing home sales for July, and on Friday, markets will receive more housing data with the U.S. new home sales report for July.
But the main event will be at 10:00 a.m. EDT on Friday morning when Federal Reserve chair Jerome Powell delivers his speech from the central bank’s Jackson Hole symposium. Markets will be paying very close attention to Powell’s choice of words as they look for confirmation of a September rate cut, and possible indications that the cut could be even larger than the 25 basis points already fully priced in.
Alex Kuptsikevich, Senior Market Analyst at FxPro, thinks the third time might be the charm for gold prices.
“Gold has been rising steadily since the end of last week and is attempting to consolidate above $2470 per troy ounce on the spot market for the third time in the last 30 days,” he said. “Gold has moved in tandem with equities this month, but it is worth noting that it fell less aggressively during the panic and outpaced the rally.”
Kuptsikevich wrote that gold is riding a global recovery in demand for risk assets, but “it has the fundamental support in its arsenal that has pushed the price to repeated all-time highs since March.”
“A trend line can be drawn across the local lows of May from which gold rallied in the early days of August,” he said. “Combined with local resistance at $2475, this forms a bullish triangle with a high probability of a breakout.
Beyond the $2,500 level, Kuptsikevich said “the $2800-2900 area is worth mentioning. The upper boundary of this range is the 261.8% Fibonacci level of growth from the September-October 2022 lows to the April 2023 highs.”
The lower boundary of the range is formed by the 161.8% level of the growth impulse from the October lows to the April-May highs,” he added. “This rally began with the first signs of a shift in the Fed’s monetary policy, supported by tensions in the Middle East and the desire of some central banks to diversify their reserves away from the dollar.”
Adam Button, head of currency strategy at Forexlive.com, thinks investors should be looking to buy the breakout. He said that Friday’s strength may have been boosted by the news that Chinese banks were issued higher quotas to buy more gold.
“Everyone’s watching China,” Button said. “They’d halted the quotas earlier, around the time that the PBoC stopped buying. China’s banks work as the middleman between investor demand or jewelry demand. But it does seem, if you strip it back, it’s not jewelry demand, it’s investor demand.”
“China has a weak economy, and Chinese investors are reacting by buying gold. Chinese domestic investors have lost faith in property and equity markets. You can’t really get your money out, and the currency’s falling. There is a crisis of confidence in China, and they’re turning to gold.”
Button said he thinks the close is important today. “It’d be nice to get a close above [$2,500 per ounce] where we are here. 93. Yeah. We’re pretty close to the high.”
“It wasn’t long ago that predicting $2,500 gold made you sound like a delusional gold bug,” he added, and here we are.”
Button noted that the new all-time high came with very little fanfare, even though gold is outperforming equities and the rest of the commodity complex.
“It would be different if stocks weren’t making new highs and AI didn’t have all this attention,” he said. “I would be less bullish on gold if it was on the front page of CNBC every day.”
Button said he thinks the yellow metal still has a long way to go because it’s breached $2,500 before the first Fed rate cut.
“The last leg of the gold rally will be on a declining U. S. dollar, it’s just hard to say when that will be,” he said. “The risk right now is that other central banks ‘out-dove’ the Fed, and I’m on board with that idea. You have to maybe end up in 2025 or 2026 when Congress finally says, “Okay, we’ve got to cut down on spending.’ And then you can get a real move in gold, because the U. S. economy will start to struggle.”
Looking ahead to Powell’s Jackson Hole speech next Friday, Button said he doesn’t expect any surprises.
“I think the messaging has been clear that they’re going to cut,” he said. “We had Musalem yesterday from the St. Louis Fed lay out what we’re going to hear, and it’s ‘We’re ready to start cutting rates, we’re confident that we’ve had progress…’ And I think they’re happy to have the option to do 50 [basis points] if nonfarm payrolls is bad.”
Michael Moor, Founder of Moor Analytics, sees potential for further gains if gold can hold above $2,500. “The trade above 23276 (-2 tics per/hour) warned of decent strength—we have attained $192.1. This is ON HOLD,” he said. “The trade back below 25076 (-.6 of a tic per/hour) warned of decent pressure—we saw $38.4. If we break back above decently, look for decent strength. This will come in at 25047 (-1 per/hour starting at 7:00 am EST). Solid trade above 25390-92 will project this upward $135 (+).”
And Kitco Senior Analyst Jim Wyckoff sees the technical picture favoring further price gains next week. “Higher as charts are firmly bullish,” he said.
At the time of writing, spot gold last traded at $2,508.14 per ounce for a gain of 2.10% on the day and 3.19% on the week.
