The gold market has just experienced another volatile week when bottom-fishing pressure and safe-haven demand at the beginning of the week were quickly replaced by a strong selling wave under pressure from positive US economic data, inflation maintained at a high level, the USD appreciated and expectations that the US Federal Reserve (Fed) will continue to raise interest rates.
Spot gold prices opened the week around 4,142 USD/ounce and quickly climbed to a weekly peak at 4,220.82 USD/ounce in the first session of the week. However, the upward momentum did not last long as the USD recovered strongly, while the market increasingly believed that the Fed would have to maintain a tougher stance to control inflation.
Increased selling pressure in the middle of the week caused gold prices to lose important support levels of 4,100 USD and 4,000 USD/ounce respectively. At one point, the precious metal fell to the week's lowest level of 3,959.38 USD/ounce before recovering.
By the end of the week, gold regained some of its upward momentum after the USD weakened and US bond yields cooled down. In addition, new tensions related to the Strait of Hormuz also boosted risk hedging demand, helping gold prices approach the 4,100 USD/ounce mark. Closing the week, spot gold prices stood around 4,088 USD/ounce, down about 1.65% compared to the previous week but still up more than 1.5% in the last session of the week.
Kitco News' weekly survey results show that pessimistic sentiment still prevails on both Wall Street and individual investors.
Among the 18 experts participating in the survey, 44% predict that gold prices will continue to decrease next week, 28% believe that prices will increase and the remaining 28% predict that the market will move sideways.
An online survey of 238 individual investors also gave similar results. 46% predict gold prices will decrease next week, 37% expect an increase and 17% believe prices will fluctuate within a narrow range.
Mr. Adrian Day - Chairman of Adrian Day Asset Management - believes that the market is currently affected by many opposing factors. On the one hand, the risk of geopolitical tensions may return and liquidity demand in the financial market is still a factor supporting gold. On the other hand, falling oil prices may drag inflation down in the next few months, thereby reducing pressure on the Fed to continue tightening monetary policy.
Mr. Neil Welsh – Director of Metals at Britannia Global Markets – said that market sentiment is still quite cautious, but the current developments are more like an accumulation phase than a collapse of the long-term uptrend.
Meanwhile, Mr. Darin Newsom – senior market analyst at Barchart. com – believes that cash flow may soon return to the precious metals market as investors withdraw capital from the energy group. He also noted that central banks are still maintaining gold buying activity, while technical indicators show gold is falling into oversold territory.
Mr. Rich Checkan – Chairman of Asset Strategies International – also maintains a positive view when saying that the $4,000/ounce zone is playing a role as a very important psychological support threshold, while stronger technical support is around $3,800/ounce.
I think the recent sell-off was excessive. Both individual investors and central banks are likely to take advantage of the current price level to increase buying," he said.
Agreeing with this view, precious metals analyst Jesse Colombo believes that gold is still in a long-term uptrend cycle and the adjustment lasting for many months is only a mid-cycle adjustment.
According to him, the area of 3,900–4,100 USD/ounce is currently a very important support zone. The rebound in gold prices from this area, along with the weakening USD and falling US bond yields, may create conditions for a short-term recovery.
Mr. Colombo said he has begun to open buy positions for gold as he believes the market is overreacting to the Fed's tough stance.
If gold prices can close stably above the 4,100 USD/ounce mark, market sentiment will be significantly improved. Then, the next resistance zone will be in the range of 4,100–4,600 USD/ounce," he said.
However, not all experts are optimistic. Mr. Sean Lusk – Co-Director in charge of trade risk prevention at Walsh Trading – believes that gold and silver still have room for correction before forming more attractive buying opportunities.
According to him, gold prices may fall back to the 3,700–3,800 USD/ounce range, while silver is likely to fall to the 50 USD/ounce area before entering a new recovery cycle.
Expert Alex Kuptsikevich of FxPro also warned that technical signals are still leaning towards a downward trend. According to him, the risk of the 50-day moving average cutting below the 200-day moving average - a model called "death cross" - may continue to put pressure on gold prices in the near future.
Meanwhile, the analysis group of CPM Group continues to recommend selling gold in the short term with a price target of 3,800 USD/ounce and a stop loss point at 4,125 USD/ounce.
According to CPM Group, current selling pressure mainly comes from investor profit-taking, stronger USD, expectations of the Fed to continue raising interest rates, cooling oil prices and more positive US economic data than forecast. However, the analysis group also noted that any unexpected developments in geopolitics or macroeconomics could quickly reverse the current trend of the gold market.
Next week, the focus of market attention will be a series of US jobs data, including the JOLTS report, ADP private sector jobs, ISM manufacturing PMI index and especially the non-farm payrolls report. These are considered important factors that can shape expectations for the Fed's monetary policy as well as the next trend of gold prices.
