Gold price is gearing up: Here’s the direction analysts are looking at

Gold price is gearing up: Here's the direction analysts are looking at

After shedding nearly $200 this week and consolidating around $1,950 an ounce, gold is looking to resume its rally, but how far can prices really go?

Gold's steepest daily correction in seven years was healthy for the market, according to analysts, who were highly anticipating it to happen.

“To lose $120 in a single session is some dramatic price action. But it was very healthy for gold to pull back down closer to $1,900. There is good support on the low end, which sets us up for more steady gains going forward into September and the fourth quarter,” Gainesville Coins precious metals expert Everett Millman told Kitco News on Friday.

An important sign from this week’s pullback was strong buying interest on dips, said RJO Futures senior commodities broker Daniel Pavilonis.

“We’ve already seen decent-sized bounce. Next week, we’ll begin to see some volatility and ultimately move higher. Don’t think the rally is done,” Pavilonis noted. “If you are on a big bullish momentum move, you will see pretty big selloffs followed by bounces up. It is good that we sold off quickly and support held — it is a test to how strong the trend really is. We can go higher now.”

On the radar: U.S. fiscal talks, U.S.-China tensions

The two biggest unknowns for next week is the U.S. fiscal package, which is still nowhere close to being passed, and the U.S.-China trade talks, which are restarting and could trigger some major volatility.

The U.S. President Donald Trump continued to blame the Democrats for holding up the coronavirus fiscal stimulus package. This comes a week after talks failed with congressional Democrats. The Republican-controlled Senate and Democratic-controlled House of Representatives are now back in an informal recess but party members can be recalled if a deal emerges.

“Stimulus package is a concerning item. Reality is that the Senate won’t convene for some time and it might be awhile before it gets through. For the moment that is a negative factor for market sentiment and negative for gold,” said TD Securities commodity strategists Daniel Ghali.

Once the deal is reached, it will end up being negative for the U.S. dollar and positive for gold, Blue Line Futures chief market strategist Phillip Streible stated.

“The U.S. dollar would take a whole leg lower if they approved the Democratic versions of the aid package. Meanwhile, the Republican version would see the U.S. dollar grind slowly lower,” Streible said. “If we can get some kind of deal, we should see inflation expectations rise.”

The U.S.-China trade talks are key for next week as traders are waiting to see some headlines before making a move, said RBC Wealth Management managing director George Gero.

However, on Friday Reuters reported that the U.S.-China trade deal review meeting has been delayed due to scheduling issues. The meeting was originally set for Saturday.

So far, China is really behind on its commitments in terms of buying U.S. exports to meet first-year targets.

“Should either [the U.S. fiscal talks or the U.S.-China trade talks] take a negative turn, traders may upend attempts to register new record equity highs, while paving the way for gold to rebound back above the $2000 mark,” said FXTM market analyst Han Tan.

Treasury yields and the U.S. dollar

Two major triggers for gold will continue to be the U.S. Treasury yields and the U.S. dollar. This week, the strength of both contributed to gold’s move down.

The biggest change this week has been nominal and real rates starting to rise, said Ghali.

“The environment that previously drove gold higher is now subsiding, but the buyers keep on buying the dips,” stated Ghali, cautioning that the price pullback might not be over. “The $1,850 level is where gold starts to get attractive again.”

As bond yields rise, gold’s appeal diminishes, said Millman. “I’m closely watching recovery in yields in the Treasury market,” he said.

FOMC meeting minutes

Another big item on the agenda next week is the Federal Reserve’s meeting minutes from July, which will be published on Wednesday. Investors will be paying close attention to any comments on yield curve control (YCC).

“Any hint at inflation targeting and YCC in the FOMC minutes next week should be USD negative,” ING strategists said. “Minutes of the July FOMC meeting are released on Wednesday and any suggestion of impending Average Inflation Targeting (AIT) or Yield Curve Control (YCC) would be a dollar negative. On balance we would prefer to back the latter story next week, meaning that the DXY could make a new low.”

Also, the meeting notes might reveal some discussion around the central bank’s review of monetary policy strategy.

Price levels

The price levels that analysts are watching vary from the high $1,800s to the low $2,000s.

Another major price pullback is unlikely next week, said Afshin Nabavi, vice president at precious metals trader MKS SA. “Psychologically, $1,900 and $1,925 is good support. On the upside, $2,000 is resistance.”

The risks on the downside and upside are both symmetrical, said Millman. “I wouldn’t be shocked if we fell below $1,900 next week. Also, it wouldn’t take much to get to $2,000.”

Streible said he is looking at $1,900 and $1,874 for support with lots of potential new buyers coming in once gold climbs back up above $2,000 an ounce. “People would be much more conformable at re-entering the market north of $2,000 on the fear of missing out,” he noted.

First resistance for Gero is at $2,000 with $1,900 as major support, followed by $1,950. The fact that the U.S. elections are coming up will add more volatility and push gold towards $2,100 an ounce by year-end, Gero added.

Data to watch

Aside from the FOMC meeting minutes on Wednesday, lots of U.S. housing data will be on the radar.

On Tuesday, markets will be watching building permits and housing starts numbers. Thursday will see jobless claims and Philly Fed manufacturing data published. And on Friday, existing home sales and manufacturing PMI will be released.

“For the upcoming week, it is all about housing data, which should look good. We know mortgage applications are strong thanks to low mortgage rates with anecdotal evidence suggesting demand is led by older buyers looking for a second or vacation home. This story has been in play for around four months now and should help fuel transactions, which in turn has historically been well correlated with consumer spending on related sectors such as furniture, home furnishings, garden equipment and building supplies,” said ING chief international economist James Knightley.

By Anna Golubova

For Kitco News

David

Gold price and stocks both have upside; the biggest risks and opportunities to watch

While macroeconomic risks linger, the environment is constructive for both gold and risk assets, said Rob Haworth, senior investment strategist, U.S. Bank Wealth Management.

“What we’re seeing in recent times is real yields are finally starting to rise…which is pressuring gold as well, so it’s been time for a correction and we’re getting that now,” Haworth told Kitco News. “I do think that gold prices in particular would be further supported by continued growth in the Fed balance sheet.”

An economic recovery is taking place, but downside risks remain, Haworth noted.

“The challenge for us is the high frequency data has flattened out a bit, so if we look at travelling, whether it’s the TSA data, we look at open tables, who’s dining in restaurants, the improvements are starting to flatten out. So we’re not, in my opinion, back to pre-COVID levels of activity overall,” he said.

Haworth maintains a bullish stance on equities. His portfolio is balanced between stocks and bonds, and this balanced approach is attributed to several lingering unknowns in the market that are being tracked.

“I think the challenge for us is really that there’s a two-sided scenario as we look forward, and there’s an awful lot of risks to get through. One, we don’t yet have fiscal stimulus this side of the pond. Two, we need to get through the back to school season,” he said.

Haworth added that the elections present a major uncertainty to the markets.

U.S. Bank Wealth Management has been paying more attention to gold in recent times, and hold the yellow metal as a hedge against their equities positions.

“Gold’s getting attractive at this point, especially with the equities decline. The primary purpose of it is to provide some downside protection relative to our equities positions,” he said.

By David Lin

For Kitco News

David

Why did the gold price crash, and will it happen again?

Gold prices saw their worst daily drop since 2013 on Tuesday. This sharp pullback was due to profit taking and did not detract from the long-term bullish picture, said Gary Wagner, editor of TheGoldForecast.com.

“Personally, I do not believe it’s the end of a bull rally. We have entered some sort of a correction. The question I’m asking myself and the technical studies I’m looking at for the answers is whether or not this will be a shallow or short correction, or an extended correction,” Wagner told Kitco News Wednesday.

Gold fell nearly 6% on Tuesday; a single-day move of this magnitude has not always been possible, Wagner noted.

“Back in the early 1980’s when I began as a commodity broker, they had limit moves on gold, platinum, and palladium. They could only move so much, kind of like the S&P now with the circuit breakers, and they would stop trading for the day,” he said.

While the rally we saw in gold had macroeconomic undertones, like a weakening U.S. dollar and an accommodative Federal Reserve, but the correction this week was due mainly to profit taking and not to any fundamental shifts in the economy, Wagner noted.

“My sentiment is that it wasn’t a macro event, but rather the market getting too crowded,” he said. “I think the reason for the selloff yesterday was pure and simple market taking.”

Wagner added that many of his personal friends who are generalist investors have been inquiring about gold, signaling to him that we may have already seen a herd mentality in the space.

The charts, however, still tell a long-term bullish story.

“On a technical basis, even yesterday’s exaggerated move did not cause any extended chart damage,” he said.

Trading activity has indicated to Wagner that this correction is likely going to be short-lived.

“What I’m seeing is even with a strong correction, and a really, really massive price decline, there were buyers willing to buy the dip, and that is what will make this correction short-lived,” he said.

By David Lin

For Kitco News

David

The overdue correction begins – How much can gold price, silver price fall?

The highly anticipated correction in gold and silver prices has begun. But don’t despair, says Commerzbank, projecting for the precious metals’ rally to resume after some profit-taking has taken place.

Gold has kicked off its downward trajectory after a failed attempt at a new record high on Monday.

“[The precious metal] made another attempt yesterday afternoon to reach the record high it posted at the end of last week, though it failed and only made it to $2,050. The price has been on a downward trajectory ever since,” wrote Commerzbank analyst Carsten Fritsch.

At the time of writing, December Comex gold futures were trading at $1,956.70, down 4.07% on the day.

It would not be surprising to see some significant profit-taking this week as prices saw extensive gains in the last few weeks — first breaching $1,920 an ounce, then rising above $2,000 an ounce, and even starting to eye $2,100 an ounce last week.

“The scale of the upswing over the past four weeks has been excessive. This was made clear by the extremely high RSI and the pronounced deviation from the 100-day moving average. Sentiment towards gold became positive in the extreme, with only a minority of participants sounding a note of caution,” said Fritsch.

Commerzbank is not ruling out seeing gold retreat to as low as $1,924 an ounce.

On top of everything else, the rally has been largely driven by investor interest, which might be enough to drive prices higher but not enough to sustain the uptrend.

“The price rise was almost solely attributable to robust investor demand, with all other demand components playing hardly any role. It is understandable that investors now appear to be taking profits,” Fritsch added. “This is also evident from the gold ETFs: they registered outflows on two consecutive days, which last happened in early June.”

However, a very significant correction like in mid-March is very unlikely, the analyst said.

Most importantly, this is not the end of the road for gold and silver prices, Fritsch noted, adding that the rally will resume after prices consolidate lower.

“The long-term outlook for gold and silver remains positive, however. Prices are likely to begin rising again as soon as the current correction has finished,” Fritsch wrote.

By Anna Golubova

For Kitco News

David

Gold rate today – Yellow metal falls as dollar rebounds; Support placed at Rs 53,700 per 10 grams level

Analysts suggest selling gold on the rise as they expect further profit booking.

US gold futures fell 0.6 percent to $2,028.10.

Gold rate today: Yellow metal falls as dollar rebounds; Support placed at Rs 53,700 per 10 grams level

Gold prices in India fell on the Multi Commodity Exchange (MCX) Tuesday tracking weakness in international spot prices on a strong dollar amid rising tensions between the United States and China, analysts said.

At 11:10 am, gold futures for October delivery fell 1.26 percent to Rs 54,255 per 10 grams as against the previous close of Rs 54,946 and opening price of Rs 54,750 on the MCX. Silver futures traded 1.64 percent lower at Rs 74,160 per kg. The prices opened at Rs 75,000 as compared to the previous close of Rs 75,394 per kg.

“Gold and Silver prices fell on profit booking as the dollar rebounded. We are witnessing a technical correction, however, undertone remains positive,” said Jigar Trivedi, Fundamental Research Analyst at Anand Rathi.

International gold fell on Tuesday as the dollar firmed after Beijing slapped sanctions on US officials in the latest flare-up in tensions between Washington and Beijing, with investors also keeping a close watch on negotiations over a US stimulus plan.

Spot gold was down 0.5 percent to $2,017.98 per ounce, moving further away from a record high of $2,072.50 hit last week. US gold futures fell 0.6 percent to $2,028.10.

According to Ajay Kedia, Director, Kedia Commodities, COMEX gold prices may fall near 1,980 levels going ahead. On MCX, if prices remain below Rs 55,000, then gold may test Rs 53,500 level, he said.

Analysts suggest selling gold on the rise as they expect further profit booking.

“Support for gold is placed at Rs 53,700 while resistance is seen at Rs 54,700-54,900 levels. For silver, support is seen at Rs 73,600-74,000 levels while resistance is placed at Rs 74,600-74,900 levels,” Trivedi added.

David

E.B. Tucker correctly predicted $2,000 gold price; he now sees this year-end target

As gold prices breached $2,000 an ounce and continue to march higher, one analyst sees momentum continuing all the way to $2,500 by year end.

E.B. Tucker, director of Metalla Royalty and Streaming and author of “Why Gold, Why Now? The War Against Your Wealth and How to Win It” said that this current bull rally has not run out of control, and is in fact, still going to going to continue at a measured pace.

“Normally I would say [the bull run is overheated] but what I’m seeing in the daily action is that gold is rising in a very measured way and is not meeting much resistance, so when that’s happening you just step out of the way and let it go, that’s what you do,” Tucker said.

The U.S. dollar has been weakening, and this trend of devaluation is not new, he said.

“This is not new. Back to Nixon in 1971, there was a period when they tried to hide the devaluation of the dollar. It’s a measured devaluation, they don’t want this to be reckless, we have an adjustment periods. We’re in that right now. So right now, the dollar value is the big deal,” he said.

Tucker noted that deflation is a bigger risk right now than inflation.

“What’s really hard for people is…deflation is the real problem because what happens is we’re swimming in too much money, so you have so much money that’s been created, and all that money that’s created over the last 10 years goes looking for investments. When all that money goes chasing for investments, the return on investments goes down, down down,” he said.

The stock market, although appreciating in nominal terms, is not really appreciating in real terms, adjusted for inflation, he added.

Investors should not be trading gold in the short term on leverage, because a short-term correction may occur at some point before prices hit $2,500 an ounce, Tucker said.

“This is a secular bull market. This is a bull market in gold that you’re probably never going to see in the course of your life again,” he said.

By David Lin

For Kitco News

David

After $2,000 gold price, $4,000 is next – Frank Holmes doubles down on call

The fiscal and monetary conditions have never been stronger for gold prices, and while the yellow metal already broke records this week by hitting $2,000 an ounce, Frank Holmes, CEO of U.S. Global Investors, doubled down on his $4,000 an ounce by the end of this bull cycle call.

Price corrections can happen along the way, Holmes said, but gold investors should buy on the dip.

“Every time you have a secular bull market, there are many 10% corrections. So you can easily get a 10% correction in stocks, if you get a 3% correction in bullion,” Holmes told Kitco News. “It’s just recognizing that that ratio of 3-1 is important, and if you have the stomach to weather it.”

On the economy, Holmes expects inflation to rise, but rates to stay low, creating a negative real rate environment.

“The greater the negative real interest rates, the greater the price of gold,” Holmes noted.

Holmes comments come as gold has breached the much anticipated $2,000 an ounce last week. Spot gold last traded at $2029.70 an ounce on Wednesday.

However, money velocity, a measure of the frequency of consumer transactions and is used as a gauge for economic health, has been decreasing, suggesting the people are not spending money.

Holmes argued that money velocity is no longer a valid metric for measuring inflation.

“You just can’t use money velocity now as an indicator of inflation. That’s really an important factor. I think more important is to remember that since 1980 when gold went through $850 and silver $50 and the gold-silver ratio back then was 17-1, you had very high interest rates. It’s very important to put that into context with what we have today,” he said. “The calculations for CPI [the consumer price index] for when gold had hit $850 has changed many times.”

The gold-silver ratio has been dropping as silver has outperformed gold recently, and Holmes said that trend is indicative of more interest from investors in the metals sector.

By David Lin

For Kitco News

David

Gold eases as dollar firms – virus fears cap losses

Spot gold was down 0.2% at $1,973.54 per ounce by 0026 GMT. It hit an all-time high of $1,984.66 in the previous session.

Reuters

Gold prices edged lower on Tuesday as the dollar strengthened and risk appetite improved after positive U.S. economic data, while fears over surging coronavirus cases limited losses for the safe-haven metal.

FUNDAMENTALS

Spot gold was down 0.2% at $1,973.54 per ounce by 0026 GMT. It hit an all-time high of $1,984.66 in the previous session.

U.S. gold futures rose 0.2% to $1,989.20.

Gold price hits new record highs, but $2,000 proves strong resistanceNews Bites

Gold is on a cusp of $2,000 an ounce level. Can the yellow metal continue its historic price rally and breach this level, and more importantly, trade above it?

At the time of writing, spot gold was trading at $1,979.10, up 0.11% on the day, after hitting a record high of $1,984.66 earlier in the session. And the December Comex gold futures were at $1,994.60, up 0.44% on the day.

The next move will depend on real Treasury yield, which are heading deeper into negative territory, said Pepperstone head of research Chris Weston.

“My gold sentiment guide has not given any bearish signals just yet and I am happy to hold a bullish bias, believing pullbacks will prove to be shallow and $2k is likely,” he said on Sunday.

U.S. fiscal negotiations will be playing a key role, according to analysts.

“Having passed the expiry of unemployment benefits, we eye this Friday’s ‘soft’ deadline before Congress heads to Summer recess, although there is the option to keep talks going until Monday 10th,” said Weston. “Reports (on Sunday) suggest that House Speaker Pelosi and White negotiators are still someway apart on restoring the $600p/w jobless benefits and that won’t inspire.”

The gold price will be watching the amount of the fiscal stimulus passed, said RJO Futures senior commodities broker Daniel Pavilonis.

“For gold, it will depend on how much stimulus is passed. If they start to wind down the stimulus, then there is a real possibility that gold softens a bit. If they ramp it up and continue to print up money, then gold should move higher,” he said Friday.

A weaker U.S. dollar pushed gold prices to new all-time highs last week and if this trend continues, gold could see more gains going forward.

“Gold prices again tested new highs [Friday] and while real yields remains the key driver, the correlation with the USD has strengthened … the USD testing two-year lows has propelled prices to new highs,” said Standard Chartered precious metals analyst Suki Cooper. “It bodes well for gold, that we expect the USD to weaken and expect real rates to remain negative.”

ING head of commodities strategy Warren Patterson projects weaker U.S. dollar for the rest of the year. “This is one factor which shouldn’t provide too much resistance to potentially higher prices,” he wrote last week.

The drivers are all still there for gold to keep climbing above $2,000 an ounce, Patterson noted, adding that he sees gold ending the year at $2,100 an ounce.

“Clearly the bulk of drivers are telling us that there is further upside to the market, and we believe it is only a matter of time before the market breaks through the US$2,000/oz level,” he said. “We expect prices to face some resistance as it approaches this level like we saw earlier this week.”

Gold investors cannot forget that a price pullback is expected in the short-term, given how quickly prices have moved up. However, the overall trend in gold remains bullish, Cooper stated on Friday.

“Prices are technically overbought; given how quickly prices have rallied, the risk of a temporary pullback has risen. But the balance of risks remains skewed to the upside for gold in light of the macro backdrop remaining exceptionally favourable; any near-term corrections are likely to be viewed as buying opportunities,” she said.

The biggest risks to the gold price rally are a quick and successful roll-out of the COVID-19 vaccine, swift USD recovery, and profit-taking, Patterson said.

Traders should also watch out for a repeat of what happened in March, which could have a major negative impact on gold, Patterson added.

“While a renewed sell-off in risk assets should provide upside to gold, there is the potential that we see a repeat of March, where a selloff in other asset classes, saw investors liquidating gold positions in order to meet margin calls,” he said.

By Anna Golubova
For Kitco News

David

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