The gold market under the microscope of analysts; Is gold ready to break the $4,200 resistance?
Source link: Gold market under the microscope of analysts; Is gold ready to break the $4,200 resistance? At a glance, gold, after falling to the $4073 range under the pressure of inflation higher than expected by the United States, made up for part of its losses by reducing bond yields and weakening the dollar, but still could not break the resistance of $4200. Kitco's survey indicates increasing doubts in the market; 50% of Wall Street analysts have a neutral view […] Source site: Safir Arjan
After falling to the $4073 range under the pressure of higher than expected US inflation, gold made up for part of its losses by reducing bond yields and weakening the dollar, but still failed to break the $4200 resistance.
Kitco's survey indicates increasing doubts in the market; 50% of Wall Street analysts have a neutral view, while for the first time in this survey, pessimism among retail investors has surpassed optimism at 43% at 45%.
In the coming week, US PMI data, the path of bond yields and geopolitical developments will be the most important gold drivers; A sustained decline in yields could support price growth, but persistently high inflation and contractionary expectations of the Federal Reserve continue to prevent a breakout to the upside.
The price of gold recovered a significant part of its losses at the end of the week after coming under severe pressure from better-than-expected US inflation data, rising Treasury yields and a strengthening dollar. Declining bond yields and weakening expectations for a Federal Reserve interest rate hike in October were among the most important factors that contributed to the return of this precious metal.
Cash gold started the week trading on Sunday evening at the level of $4193.59 per ounce and initially crossed the $4200 mark for a short time; Because the traders were still monitoring the developments of the US-Iran conflict and the inflationary risks caused by high energy prices. However, the rally was quickly halted and gold returned to the downside in Tuesday's trade after hitting a weekly high of $4,216.91 on Monday, driven by a stronger dollar and rising Treasury yields.
The selling pressure intensified on Wednesday; After the US consumer price index (CPI) report showed that annual inflation reached 3.7% in September and exceeded expectations. The report reinforced concerns that the Federal Reserve may tighten its contractionary policies in response to inflation driven by rising energy prices. As a result, gold fell below the $4,100 level and recorded its weekly low at $4,073.35 per ounce around noon on Wednesday; Because traders overestimated the possibility of an interest rate hike in the October session and the US dollar strengthened.
Despite the release of another higher-than-expected inflation report, this time in the producer price index (PPI), gold began its recovery on Thursday; Because the yield of treasury bonds fell behind the recent highs and the US dollar weakened. This return continued in Friday's trading as well; After Federal Reserve Chairman Kevin Warsh declined to signal an October interest rate hike in a speech early Friday. The stance helped dampen expectations for an immediate tightening of monetary policy, although markets still forecast another interest rate hike by the end of the year.
In the following, gold once again approached the level of $4200 for a short time, but could not reach it and lost part of its growth. As a result, the precious metal ended the weekend slightly lower than at the start of the week, as well as Friday's trading.
The latest Kitco News weekly gold survey showed that half of Wall Street analysts are still skeptical about the direction of the short-term movement of gold prices; Meanwhile, the failure of gold to cross the key resistance of $4,200 has intensified the pessimism of small investors known as the Main Street and has brought the share of bearish views to the threshold of majority.
"I have a neutral outlook on gold for the week ahead," said Colin Cheshinsky, chief market strategist at SIA Wealth Management. "Gold appears to be hovering around the $4,200 level for now, and with less economic data coming out next week and market focus shifting to corporate earnings reports, there will be less drivers for price action."
Darin Newsom, senior market analyst at I don't care about technical analysis right now, even though the December gold futures contract remains in a medium-term uptrend on the weekly chart, nor fundamental analysis, even though central banks around the world continue to buy gold. What caught my attention were the reports that the US president said he would not use nuclear weapons and would not send ground troops to Iran. To me, that probably means he plans to do exactly that. With that in mind, long-term investors may be interested in gold once again if it all falls apart over the weekend. I also spent this weekend watching the 1964 classic Dr. Strangelove and listening to R.E.M.'s "It's the End of the World As We Know It." I will spend."
"No change," said Adrian Day, president of Adrian Day Asset Management. I still believe that gold will continue to fluctuate for some time before it succeeds in rising. However, it seems that the time of this failure is not far away. Gold's resistance to rising bond yields, a relatively strong dollar, and high oil prices sends an important message about market strength. Gold has decent support at the lower levels and now it's just a matter of when the upside breakout will occur. However, the most likely trigger for this move would be the end of the war; An event that can lead to a decrease in the value of the dollar and the price of oil, and as a result, reduce inflationary pressures and expectations for an increase in interest rates.
James Stanley, chief market strategist, said: "Bullish. The strong price reaction towards the end of the week was noticeable. Although we can still expect the market to continue to stabilize and digest recent developments for some time, especially since the price is forming a descending corner pattern, I prefer to maintain my bullish bias until I find a reason to change my view. "The $4,000 level remains the most important area to watch in the cash market, and until this level is decisively broken, I will probably maintain my bullish view."
Fouad Razzaqzadeh, a market analyst at StoneX Bullion, said that despite gold prices rebounding midweek, he still doubts the market has bottomed out.
"Yes, the US dollar has weakened somewhat and the downward trend in Treasury yields has also helped gold," he said. But despite the easing of immediate pressures, I'm reluctant to see Thursday's rally as a clear sign that the price correction is over. At least for now, my short-term outlook for gold remains somewhat bearish; However, in the long term, I have a strong bullish view on gold and especially silver.
Razzaqzadeh added that he is waiting to receive a confirmation about the formation of a price floor in the gold market.
"The precious metal has struggled to maintain key support around $4,100, but a resistance area above the price remains intact," he said. In order to change my view to bullish at the current levels, I need to see the price break through this resistance range. Therefore, the technical outlook of gold is still uncertain."
"Upward," said Rich Chekan, president and chief operating officer of Asset Strategies International. With the US dollar weakening for the first time in five weeks, gold should benefit from this situation. "Buyers who purchase gold in currencies other than the US dollar will ultimately be able to purchase gold at a lower cost thanks to a more favorable exchange rate."
Naeem Aslam, chief investment officer at Zaye Capital Markets, believes the outlook for gold will depend on whether pressures from sustained inflation outweigh the negative effects of possibly higher interest rates.
"Thursday's pullback in Treasury yields and the dollar supported gold prices despite the release of stronger-than-expected wholesale inflation data," he said. This shows that gold is more affected by changing expectations about real bond yields than just reacting to inflation numbers."
"Analysts should keep an eye on the $4,154 range as short-term support and the $4,179 level as immediate resistance," Salam added. In addition to these levels, the changes in treasury bond yields, the strength of the dollar, the policy signals of central banks and the changes affecting the global energy supply are also important. A steady decrease in the real yield of bonds can encourage investment institutions to increase the share of gold in their asset portfolio; While re-invigorating expectations for monetary policy tightening may lead to stabilization and limited price volatility. Therefore, we believe that inflation uncertainty, the demand to cover geopolitical risks and changing expectations about monetary policy will be the most important forces determining the path of gold prices until the end of 2026."
"Bearish," said Adam Button, head of currency strategy at investingLive. I find it hard to imagine the Fed settling for just the 70 basis point interest rate hike that is now priced into the market expectations curve. "This week's inflation data exposed a big problem that's being overlooked because of concerns about AI-related debt."
Daniel Pavillonis, senior commodity broker at StoneX Group, told Kitco News that gold continues to have an inverse relationship with the 10-year US Treasury yield, and an increase or decrease in this yield can determine when investors should be in a position to buy or sell the precious metal.
He said: "Now we are witnessing a situation similar to the 1970s; A period when high interest rates and sticky inflation were the main features of the economy. In such a situation, some sectors of the market or economy perform well, but other sectors face problems. Currently, the AI sector seems to be very powerful, especially with the development of related infrastructure. But maybe this point of view is correct to some extent that the factor of inflation is not only the energy sector, but also the demand structure caused by the boom of artificial intelligence. Instead of the funds being spent on buying US Treasuries or similar assets, they will be spent on developing AI infrastructure."
Pavillonis said the inverse but limited reaction of bond yields and gold prices to this week's inflation data was interesting.
"The CPI report came out, we had the PPI report and the CPI figure was very high," he explained. But the 10-year bond yield failed to break its previous ceiling, right? The yield rose to 5.299%, while the previous ceiling was around 5.32% or something close to it. If you put the candlestick chart of the 10-year bond yield next to the candlestick chart of the gold market, you will see that they are almost mirror images of each other; "Exactly the same, but in reverse."
He added: "Yesterday, we saw the continuation of the downside failure of bond yields, and gold seemed to have a good trading day."
Regarding the future outlook, Pavillonis said that he will monitor the key levels of bond yields and the price of the precious metal to determine the possible direction of gold.
"I think if bond yields can continue to fall, maybe the Fed will keep interest rates high in the short-term portion of the yield curve, but long-term bond yields will start to pull back because of uncertainty about the state of the economy," he said. In my opinion, this issue will be the main factor in the movement of metals in the current situation."
Pavillonis added: "If we take a step back from the market and look at the bigger picture, if bond yields rise to 8%, where would gold be?" In my opinion, the price of gold will decrease to at least 3500 dollars. The same question is raised about silver; Where will the price of silver reach? I think it might drop below $40. So that's the scenario we're really looking at."
Pavillonis believes that many of the factors that caused the growth of gold and silver prices at this point last year no longer exist.
“The headlines, market drivers and interest rate conditions were different; The rates were lower and all these events happened before the conflict with Iran. Now we are facing the issue of Iran, which fuels inflation, but precious metals are not that powerful a tool to cover inflation risk. Even from a geopolitical point of view, it was strange that with the start of the Iran war, gold could not record new ceilings and since then it has not moved significantly."
"I think the market could experience another bullish wave, but it will ultimately depend on the decline in bond yields," Pavillonis concluded. "If the 10-year bond yield can break below the 5% level, I think this could be very positive for gold."
This week, 12 analysts participated in Kitco News' weekly gold survey, and after gold's volatile but limited performance in a given price range, half of Wall Street analysts are now skeptical about the future direction of the precious metal. Four experts, equivalent to 33%, expect the price of gold to increase in the coming week; While only two analysts, equivalent to 17%, predicted a decrease in the price of this yellow metal. The remaining six analysts, who made up 50% of all participants, said they were unable to predict the direction of gold's movement or expected the price to continue to fluctuate neutrally and back and forth next week.
Meanwhile, 139 votes were registered in Kitco's online poll, and after gold once again faced resistance at $4,200, the view of retail Main Street investors is more inclined towards the formation of a bearish majority. 60 retail traders, equivalent to 43%, expected gold prices to rise next week; While another 63 people, equivalent to 45%, predicted a decrease in the price of this precious metal. The remaining 16 investors, who made up 12% of the total votes, expected gold to remain in the price stabilization phase in the coming week.
The week ahead will be relatively low-key in terms of economic data releases, with the most important events including housing sector reports, weekly jobless claims and the release of Purchasing Managers' Indicators (PMI) and consumer confidence on Friday.
The U.S. economic calendar begins Tuesday morning with the release of new home starts and building permits, followed by the pending home sales report. All these data are for the month of September.
On Thursday, traders will be watching weekly jobless claims numbers to get an updated picture of the state of the US labor market.
Then on Friday morning, the most important economic reports of the week will be published; First, the preliminary estimate of purchasing managers' indices for the manufacturing sector, services and the composite index of S&P Global Institute for the month of October and after that, the final report of the consumer confidence index of the University of Michigan for the same month will be available.
"During the week, oil price fluctuations and geopolitical headlines, along with company financial reports, can be the source of fluctuations."