by (Kitco News) Gold staged a solid rally on Friday as markets increased bets on a slower Federal Reserve tightening cycle after the November meeting. Analysts are now paying close attention to next week’s third quarter US GDP data and earnings reports to get a better picture of the state of the US economy.
December gold futures rose more than $20 on the day and last traded at $1,657.80 an ounce after hitting a new two-year low and nearly breaking through key support at $1,620 earlier this week.
The rise came as markets re-examined their rate hike expectations after The Wall Street Journal reported that the Fed would discuss the size of future rate hikes after its widely expected 75 basis point hike in November.
“The idea that we could see the central bank discussing whether they should move to a slower rate of tightening really excited investors,” Edward Moya, senior market analyst at OANDA, told Kitco News.
Before Friday’s news, the market was looking for a 75bps increase in November and a 75bps increase in December. Now, if the Fed talks, it could easily justify a half point change in December. In addition, the US economy may begin to see the effects of the first interest rate hikes, Moya pointed out.
“Today’s rally is impressive. Gold held the $1,620 level after a big reversal in rate hike expectations. Gold may have dodged a bullet here. Next week is critical for earnings season,” he said. “Lots of market potential for volatility. I’m leaning to the upside next week. We could probably see the idea of the Fed lowering support.”
Moya pays particular attention to next week’s third quarter GDP data, scheduled for Thursday. Market consensus calls for growth to recover to 2.1 percent after two negative quarters.
“GDP data is a big wild card. We should turn positive after two bad quarters. There are a lot of things that can complicate what’s going on here. Now there is a risk that something will break in the economy,” Moya stated. .
From a technical point of view, gold is still in a downtrend, and the risk has tilted to the downside.
“Technically, we better stay here or prices could drop another 5 percent to $1,560, then $1,470-$80. That’s technically changing,” Sean Lusk, co-director of Walsh Trading, told Kitco News. “But from a negotiation perspective, gold saw a six-month washout after it hit a peak of over $2,000 an ounce in March. When will it stop? How much will it take before we stabilize?”
There is a risk that gold could drop another $100 before bottoming out, Lusk warned. “The $1,620 level has to hold in the short-term – a possible double bottom on the charts. Investors have sold into the rally. We’ve hit a short-term bottom, so I’m bullish next week. But all bets are on the Fed meeting in November,” he said.
Gold is currently in uncharted territory, said Gainesville Coins precious metals expert Everett Millman, noting that gold is well below some key trading levels from earlier this year.
“It will be interesting to see how quickly higher interest rates slow inflation. Even though higher interest rates are negative for gold, even higher interest rates are still below inflation, which means real interest rates are still negative. So if the Fed reverses next year, we’ll see gold react gradually,” Millman told Kitco News.
TIME TO VOTE: Where is #gold going next week? #kitconews #kitcopoll
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Another unknown to watch is China and its decision to delay the release of its macroeconomic indicators due this week, which included its third-quarter GDP data.
“China is less transparent and is delaying financial data reports. I’m watching how long that delay is. If we go a month or more without getting data from China, that could be a big red flag that creates more safe harbor flows,” Millman added.
Next week’s macro data
Tuesday: CB consumer confidence, Yellen speaks
Wednesday: US new home sales, Bank of Canada interest rate decision
Thursday: European Central Bank rate decision, US jobless claims, US Q3 GDP, durable goods orders
Friday: US PCE price index, US awaiting housing sales
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect his own Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not a solicitation to make exchanges in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and/or damage arising from the use of this publication.
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