In midweek, the US Federal Reserve (FED) cut interest rates by another 25 basis points, in line with market expectations. However, Fed Chairman Jerome Powell has made investors worried by saying that continuing to cut interest rates for the third consecutive time in December is not a certain thing.
Before the meeting, investors bet on a 90% chance that the Fed would cut interest rates, but after Mr. Powell's speech, this probability decreased to 63%. The surprise Hawl statement kept gold prices low for the week, around $3,900 an ounce.
At the same time, cooling trade tensions between the US and China could reduce the attractiveness of gold as a safe-haven asset.
Although it has recovered to the $4,000/ounce zone, analysts believe that gold currently lacks strong enough momentum to surpass the resistance level. The latest spot price was recorded at 3,988.1 USD/ounce, down nearly 1% on the day.
Short-term and long-term prospects
Philip Streible - chief strategist at Blue Line Futures commented that gold still has room for increase in the short term, but needs to surpass the threshold of 4,175 USD/ounce to regain a clear uptrend.
Weaker data next week could reflect a weakening labor market, forcing the Fed to continue policy easing despite Powells caution. This could create a driver for gold prices," Streible said.
Meanwhile, Ole Hansen - Director of Commodity Strategy at Saxo Bank - said that the current selling pressure does not change the long-term outlook for gold. However, he predicted that prices will continue to accumulate sideways.
The previous accumulation period lasted four months, so if prices set a new record before the end of the year, it would be surprising.
Mr. Powell is cautious because the situation is unpredictable, while the US-China trade deal has not actually solved the core problem. Therefore, patience is the right strategy at this time" - he commented.
Valuation trading and supporting factors
Aaron Hill, an analyst at FP Markets, said the gold market will see strong fluctuations as investors seek a balance between opposing factors.
Gold prices held around $4,000 an ounce as the Fed hinted that it may not cut interest rates in December, along with a US-China tax deal that reduced safe-haven demand. However, the VIX volatility index is still high above 16, causing the defence cash flow to flow slightly into gold.
I am still optimistic in the long term - buying when prices fall below $3,950/ounce is reasonable" - this expert said.
Lukman Otunuga - senior analyst at FXTM, noted that political instability in the US - when the US government cannot pass the new budget - could continue to support gold prices.
Technically, gold prices have fallen about 8% from historical peaks, but still rose 4% for the month. The resistance level is close to $4,050 and supporting around $4,000/ounce; breaking one of these two milestones will shape the upcoming trend," he said.
Economic risks and data to monitor
If the US government is not reopened next week, it will be the longest closure in history. The situation has lasted for a month and is at risk of affecting economic activity, especially if the budget for the SNAP food subsidy program expires, affecting 1/8 of the US population.
According to Legal Shield - the CSLI consumer stress index of this company has increased to a 5-year high, reflecting the financial difficulties of the American people. However, many economic experts believe that the labor market is still the main pillar of the economy.
While government employment data wont be released, next week the market will see private-sector employment data from the ADP, the Institute for Supply Management (ISM) PMI, and the University of Michigan Consumer Confidence Survey key indicators of economic health and inflation.
Schedule for releasing important economic data next week
Monday: Manufacturing ISM index.
Wednesday: ADP Employment Report, ISM survey for the service sector.
Thursday: Bank of England (BoE) monetary policy meeting.
Friday: Preliminary survey of consumer confidence University of Michigan.
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