Don’t rule out a long weekend gold price surprise – Analysts
(Kitco News) Despite gold’s comfortable $20 rally after the US jobs report, analysts remain cautious, citing negative macro drivers and dangerous technical levels that could send the precious metal lower next week.
A strong US dollar and higher yields pushed gold below $1,700 an ounce earlier this week.
Market leader OANDA said: “Gold has become a hole bag as rising Treasury yields revitalize the king dollar trade. It was just bad news all around for gold. There is no delay in sight for gold until the rally ends with global bond yields.” Analyst Edward Moya.
Comex gold for December is looking to close on Friday at around $1,727.20 an ounce, down 2.5% on the week, after rising on the back of the August jobs report.
But analysts see Friday’s move as short selling. “The market has been trending lower. We failed to sustain the levels above $1800. The $1700 level is the bottom. I expect the market to be range bound. Until we can break above $1,745 on a closing basis, I will remain neutral. Moreover, I am starting to feel positive. Frank Cooley, chief market analyst at RJO Futures, told Kitco News.
Michael Pierce, chief US economist at Capital Economics, said the 315,000 increase in non-farm payrolls in the US and the slight rise in the unemployment rate to 3.7% indicated a smaller 50 basis point increase versus the 75 basis point increase expected by markets.
“The data indicates that labor market conditions are starting to slow significantly, which we expect will contribute to weaker economic growth over the coming years. With labor market conditions also easing, this is contributing to weak wage pressures, which will help fend off the latest Fed Pierce said Friday.
The dollar fell in response to the data, giving way to gold to rise. However, analysts remain very cautious, especially with the long weekend approaching.
“These long weekends bring a lot of surprises,” Sean Lask, Walsh Trading co-director, told Kitco News. “Everyone is heading towards the weekend. Recent shorts are covered. But there is still a lot of uncertainty, and gold could fall if $1,680 fails to hold.”
The dollar problem: the price of gold is at risk from $1600 to $1500
Lusk noted that if the US dollar stays higher and breaks at $1,680 an ounce to the downside, it will open the door to $1,550 an ounce.
“I’d be really cautious here given the long-term outlook for the stock market,” he said. “I don’t see how gold can sustain a rally with stocks higher and the dollar buying on dips.” “If near-term gold lows cannot hold and we drop to $1,678, gold may fall back to pandemic lows at $1,625 and then even $1,484. Gold needs to hold $1,670 – $1,680. If not, it will fall to lower levels.”
For Lusk to turn bullish for gold, the precious metal must break the resistance level at $1800 an ounce. “Whether gold is doing it when physical demand increases, or hedging against what stocks are doing, or some new safe-haven buying,” he added. “I’m a little scared here from a seasonal perspective. Gold should have gone up more strongly in August.”
Chulli noted that the range between $1,695 and $1,700 represents the long-term market value. “The market could go lower if the Fed continues to take very tough action while raising interest rates,” he said. “The dollar got a lot of support from the idea that the Fed will keep raising interest rates aggressively.”
Cooley cautioned that the Fed is behind the inflation curve and could exaggerate its lifting cycle. “Gold is likely to have further declines. The longer-term charts show that $1,700 is a good support level. If we take it out, we should start looking at $1,600,” he said. “If we close below $1695, there are fears of another $100 drop.”
Lusk added that some support for gold may come from geopolitical tensions, particularly in Eastern Europe. “No one is going home for a short time today, given the geopolitical concerns.”
Next week’s data
Tuesday: American non-manufacturing ISM
Wednesday: Bank of Canada rate decision
Thursday: Fed Chairman Jerome Powell speaks, ECB rate decision, US unemployment claims
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