Gold needs to break above $2,010 for prices to have a chance at ATHs
The gold market has managed to reclaim the $2,000 level as it looks to end its second consecutive week in positive territory. However, analysts have said that gold's momentum remains limited, and prices are unlikely to break current resistance levels as the Federal Reserve maintains its tight monetary policy bias.
Analysts noted that with Israel and Hamas agreeing to a limited cease-fire, weakening the precious metal's safe-haven allure, U.S. monetary policy is expected to be the most significant factor driving gold's near-term price action.
"Our economists only expect the first rate cut to be implemented in the middle of next year, so only then is the price of a troy ounce of gold likely to climb lastingly above $2,000," said Commerzbank commodity analyst Barbara Lambrecht in a note Friday.
However, while gold will likely be stuck below $2,000 an ounce, many analysts are not expecting to see much downside risk as seasonal factors start to kick in.
In a recent note, Nicky Shiels, head of metals strategy at MKS PAMP, said that in the last five years, gold has seen average gains of 2.7% between Thanksgiving and Dec.31.
Gold is above $2,000, but resistance continues to holdOle Hansen, head of commodity strategy at Saxo Bank, said that the biggest risk for gold will be rising bond yields that strengthen the U.S. dollar.
"Gold looks well supported and only a sharply higher dollar will change that," he said in a comment to Kitco News. "Whether or not it's ready to make a decisive push higher already is a bit doubtful unless a break/close above 2010 triggers [fear of missing out]."
With renewed focus on U.S. monetary policy, the gold market will be sensitive to U.S. GDP and inflation data. Although the U.S. economy is expected to see extraordinary growth in the third quarter, there are growing fears of slower activity in the fourth quarter. At the same time, slower growth is expected to continue to slow inflation.
Markets will also be paying attention to a slew of central bank speakers on Tuesday, while Federal Reserve Chair Jerome Powell will cap the week as he participates in a fireside chat titled "Navigating Pathways to Economic Mobility" at Spelman College in Atlanta.
In recent comments, Powell has been fairly straightforward that interest rates will remain in restrictive territory as inflation still isn't under control.
However, energy prices and next week's OPEC+ meeting could be a potential wildcard for inflation.
It is expected that the oil cartel will announce new production cuts, but if these underwhelm expectations, then oil prices would continue their current downtrend.
Daniel Ghali, senior commodity strategist at TD Securities, said that counter-intuitively, lower oil prices could provide some near-term support for gold. He explained that lower energy prices will give the Federal Reserve some room to ease its current tightening bias.
However, Ghali said he doesn't see gold prices breaking new ground anytime soon. He noted that Asian and emerging market demand continues to provide support for the precious metal, but added that gold remains stuck as Western investors continue to avoid it.
"We expect Western investors to continue to ignore the gold market until the U.S. falls into a recession in the first half next year, which forces the Federal Reserve to aggressively cut interest rates," he said.
Gold and silver prices stuck, waiting for a catalyst – Quant Insight's Huw Roberts
Gold is above $2,000, but resistance continues to hold
Looking at gold's technical picture, analysts have said that investors and traders need to keep an eye on initial resistance at $2010.
"Should buyers achieve a close above $2009, the price could extend the bullish run towards $2050, the April high, before bringing $2082, the all-time high, into focus," said Fiona Cincotta, senior market analyst at City Index.
On the downside, analysts have highlighted initial support between $1,945 and $1,930 an ounce.
"If we see gold prices go back below $1,940, then this new uptrend is done and we will have to wait for another buying opportunity," said Phillip Streible, chief market strategist at Blue Line Futures.
However, Streible said he remains bullish on gold as the market appears to be setting itself up for a Christmas rally.
Economic data for next week:
Monday: U.S. new home sales
Tuesday: U.S. Consumer Confidence
Wednesday: Preliminary U.S Q3 GDP
Thursday: OPEC meeting, U.S. CPE Index, personal income and spending, weekly jobless claims, pending home sales
Friday: ISM manufacturing PMI, Powell fireside chat
For Kitco News