(Kitco News) – After traders witnessed one of the least eventful weeks for precious metals in months last week, drama returned to the gold market this week, with big moves in response to significant data and Fed speak.
Gold prices kicked off Sunday trading around $2,024 per ounce in the spot market, trending slowly but steadily higher in the first half of the week before the FOMC statement and Fed Chair Powell’s press conference on Wednesday afternoon dashed all hopes of a spring rate cut and sent gold sharply lower.
Thursday morning saw gold reverse course and shoot up to a weekly high of $2,064.28, and prices continued to trade in the 2050s until Friday morning’s jobs report came in nearly double the consensus, driving gold back down to a bounce at $2030 per ounce.
The latest Kitco News Weekly Gold Survey showed a clear divergence between institutional and retail traders, with two thirds of experts losing faith in the precious metal, while most retail investors still expect prices to rise in the coming week.
Frank McGhee, head precious metals dealer at Alliance Financial, was among the participants who think gold still has lower to go. “Market is way mispriced given the continued strength in the U.S. labor market and the election year calendar,” he said.
Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, said this week’s data and statements were a wakeup call for the gold market, and further downside risks remain.
“Bulls had a number of reality checks this week,” he said. “Firstly, it was the Fed who slapped the speculators with reality and told them that they should not think of a rate hike cut in March, which was fueling the rally in the gold price. And today, we had the final nail in the coffin as the US jobs number produced a blowout print.”
“All of this has made the dollar index strong, which is weighing on the gold price,” Aslam said. “The important level to watch now will be the 2K price mark, and a drop below that would create more panic.”
James Stanley, senior market strategist at Forex.com, has switched from bull to bear after prices couldn’t breach resistance. “Bulls had their chance this week but were once again unable to push a sustained break through the $2050-2082 resistance zone,” he said. “No rate cut in March and a strong NFP report could give enough motive for bears to take a shot and we might finally get that first test below $2k in 2024.”
Mark Leibovit, publisher of the VR Metals/Resource Letter, said he expects a near-term correction below $2,000 before gold takes off again. “Getting more bullish as we approach the 1980 plus area,” he said.
“I think we’ve reacted to the data we got between Wednesday and today,” said John Weyer, Director of the Commercial Hedge Division at Walsh Trading. “This jobs report came in bigger than anyone I saw forecast, that was a bit of surprise. I think we’re going to hang around here, we’re going to test the $2,000 level, but we’re going to hang around the area for a while is my gut feeling, until we get some new data point or a change in Fed speak.”
Weyer said he believes that the gold market has effectively repriced the rate path at this point.
“I think it’s digested the news and the data, and I don’t want to say ‘stabilized’, but gold found where it should be in relation to that latest Fed forecast,” he said. “That’s my feeling on it. I think we’re going to be a little rangebound.”
“The big X factor is world events,” he added. “Things seem to be cooling down a bit, but any world news, something kicking up again in Gaza or anything along those lines, could have a flight to quality or fear-factor trading going on.”
Weyer said he thinks gold will remain drawn to the general area of $2,000. “I think it’s not going to want to move too far away from there,” he said. “There are still some inflationary concerns out there that are enough to prop this up. But on the upside, I think $2,150 to $2,200, we’ll go test that again on sustained world event news.”
“If the data changes, we could go above $2,200,” he added. “But right now, I think we’re in that $2,000 to $2,200 range, and really trading from about $2,000 to $2,120.”
This week, 12 analysts participated in the Kitco News Gold Survey, and Wall Street sentiment appears to have turned decidedly bearish on the precious metal’s near-term prospects. Only two experts, or 17%, expected to see higher gold prices next week, while eight analysts, representing 66%, predicted a drop in price. Another two experts, representing 17%, expected gold prices to trade sideways during the coming week.
Meanwhile, 123 votes were cast in Kitco’s online polls, with a slim majority of Main Street maintaining a bullish attitude. 66 retail investors, representing 54%, looked for gold to rise next week. Another 27, or 22%, predicted it would be lower, while 30 respondents, or 24%, were neutral on the near-term prospects for the precious metal.
The Middle East will be the major focus for the gold market next week, as the only major data point due for release will be Monday’s ISM service sector PMI, though markets will also watch weekly jobless claims on Thursday for insight into today’s NFP numbers.
Adrian Day, President of Adrian Day Asset Management, thinks gold will have to give up more of its recent gains to realign with the economic realities. “The recent hawkish statement from Fed chairman Jerome Powell as well as recent jobs numbers suggest that the Fed may not lower rates in March, at their next meeting,” Day said. “Given the optimism built into the gold price for near-term hikes, this suggests gold may correct.”
“I am bearish on Gold for the coming week,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “As has often been the case lately, I see USD action as the main driver. In this case a less dovish Fed pushing up treasury yields and the greenback. For Gold to break away from USD we would probably need an external event, say something political or war-related, or new problems in the banking sector for example.”
“Gold and a lot of markets have had to adjust their outlook given what the Fed said in their statement and what Powell said in his press conference,” said Everett Millman, Chief Market Analyst at Gainesville Coins. “I think it’s pretty clear that the FOMC is willing to wait longer on rate cuts, and most markets don’t like that news, but I think that there’s a very reasonable case to be made that they should keep them higher for longer if indeed the economy is as good as most of the data is telling us.”
On the other hand, Millman said that the big headline number on the nonfarm payrolls report is concealing weakness in business hiring.
“If you dig a little bit deeper in the data, it looks like virtually all of the gains came from public sector hiring rather than the private sector,” he said. “I think that’s been a theme with the unemployment numbers for much of this past year, and I think that’s one of those underlying reasons that so many people, in the U.S. especially, feel that the labor market is not really matching up with these rosy unemployment numbers and jobs numbers. If you don’t work for the government, then there’s been all these headlines about layoffs, and there’s just a little disconnect going on there.”
Another thing Millman sees looming over the U.S. economy is the threat of the regional banking crisis flaring up again. “We had the New York Community Bank Corp, where now we’ve got this kind of thing back in the headlines as it was last spring,” he said. “I think that places a bit of a floor beneath the gold price. One of the most direct reactions to that whole episode last March, when you saw several banks distressed and being bought up by competitors, was that the gold price spiked, and interest in gold went through the roof. If that issue is contained, I think that it would be reasonable for the gold price to trade sideways or sell off a little bit, but that’s not entirely clear to me yet.”
“If the economy is actually doing as well as a lot of the data indicates, we would expect gold to be below $2,000 an ounce,” he said. “And yet it’s held above that level for going on two-plus months now. So I think that does suggest that markets are still a little bit wary. They’re still waiting for more confirmation in the economic data before they jump back into a risk-on posture.”
With this week’s additional clarity from the jobs report and the FOMC, Millman said that geopolitical conflict will be the main driver for gold price action going forward.
“Over and above anything else, even economic conditions, I’d say that geopolitical strife is gold’s most consistent driver,” he said. “It’s the thing it’s most highly correlated with in a lot of cases. I think it’s definitely a wait-and-see situation. If we get good news that there is a cooling down of tensions or some sort of agreement reached, obviously with Israel and Palestine, but also what’s going on in the Red Sea, I think pretty quickly, gold would blow off some steam.”
Millman said that the opposite is also true. “If there are bad headlines that the situation’s getting worse, that would certainly drive gold back above the $2,050 level, that seems to be the ceiling it’s bumping its head against right now,” he said. “There’s certainly been a geopolitical premium on the gold price, there’s no doubt about that in my mind.”
“Gold should continue to maintain some sort of war premium, for lack of a better phrase,” he added. “But I don’t think that’s mispriced right now, I think that it’s priced in. That may be one of the reasons gold has held this high for this long. So I would be waiting to see some sort of change in that situation.”
“Down,” said Darin Newsom, Senior Market Analyst at Barchart.com. “Why? Because Punxsutawney Phil didn’t see his shadow this morning.”
“I’m only half kidding, as gold is giving us little to go on from a technical point of view,” he said. “It seems nearly every bullish day is followed by a bearish setback, and vice versa. If I extend the view out to April’s weekly chart, I still see an intermediate-term downtrend that should at least test the previous low of $2.007.40. Additionally, the US dollar index is in an intermediate-term uptrend, hitting a new 4-week high early Friday.”
“Higher rates and a stronger dollar after the stronger than expected employment report sent gold tumbling lower,” said Marc Chandler, Managing Director at Bannockburn Global Forex. “Gold tumbled from near $2057.70 in the spot market to $2028 in the hour after the jobs data. I suspect there is potential back toward $2000, especially if it closes below $2030.”
And Kitco Senior Analyst Jim Wyckoff expects gold prices to trend sideways next week. “Unchanged and choppy as bullish aspect of elevated geopolitics/risk aversion offsets bearish element of strong jobs report/more hawkish Fed,” he said.
Since its sharp decline below $2,030 per ounce on Friday morning, spot gold has trended steadily higher, last trading at $2,039.75 at the time of writing, down 0.75% on the day but still up 1.05% on the week.
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