(Kitco News) Gold is quickly becoming an asset to watch as inflation starts to slow and crypto markets go through another meltdown. The precious metal has climbed above $80 — its best weekly gain since July 2020. But analysts aren’t calling for another bull market just yet.
The spot price of gold started the week at $1,681 per ounce and was last at $1,765. This is the best performance since the week ending July 24, 2020, when gold rose over $90 to a new record high of over $2,000 an ounce later that year.
December Comex futures last traded near daily highs of $1,767.60 an ounce.
The sharp turnaround comes after the latest U.S. inflation data showed that price pressures are easing. The market’s biggest takeaway was the prospect of a more flexible Federal Reserve system in the coming months. The news sent the US dollar lower, giving gold room to rally.
“US consumer prices rose much less sharply than expected in October, dampening Fed rate hike expectations, putting pressure on the US dollar and causing US bond yields to fall sharply,” said Commerzbank analyst Carsten Fritsch. “As a result, the price of gold rose. To $1,760 per troy ounce, the highest level since late August.”
Analysts have been expecting a return to gold after seven straight months of losses – the longest losing streak in more than five decades. And gold finally moved into a mix of election headlines, I hope the Fed slows things down and China opens up again.
“We had a breakout Thursday with a very positive close, and we’ll get some follow-through on Friday. For technical traders, this chart is still very strong. I have no reason to say it will turn around and go back down. We should find levels closer to $1,775-$1,800 before than the market stops,” Frank Cholly, senior market strategist at RJO Futures, told Kitco News.
The rally also coincided with another massive selloff in the crypto space, with Sam Bankman-Fried’s cryptocurrency exchange FTX filing for Chapter 11 bankruptcy on Friday. The event is associated with a high risk of contagion, which will continue to affect the crypto space and the wider market.
Crypto volatility is much wider this time around, making gold more useful than in previous months of this crypto winter.
“Conditions in the crypto industry have changed compared to the summer months. Investors are more concerned than earlier this year. And the amount of capital in the crypto market is quite large,” Gainesville Coins precious metals expert Everett Millman told Kitco News. “And gold has that traditional role – it’s trusted and seen as a traditional safe haven.”
Can Gold Break $1800?
Despite the significant gains gold has already made, analysts see the precious metal heading even higher, with Cholly highlighting $1,830 an ounce as a level technically possible next week.
“There’s still momentum here. We could see the market go back to $1,830 before gold runs into stronger resistance. Unless the Fed comes out and tries to talk things up a bit,” Cholly said on Friday.
Too early for a Fed pivot
For gold, it all depends on how quickly the Fed’s cyclical movement emerges. But analysts say it’s too early for the U.S. Federal Reserve to back off, so the precious metal will have to be patient a little longer before seeing a renewed bull market sentiment.
“I’m not convinced we’ll see gold go to $1,900 just based on the Fed expressing a more dovish tone and the crypto market collapsing,” Millman said. “We’ll probably give back some of those gains, but as long as we hold above $1,700, we can see some momentum.”
This is not the time for the Fed to pivot, Cholly added, noting that just two weeks ago, Fed Chairman Jerome Powell told reporters it was premature to change policy and that interest rates could rise higher than expected.
“Inflation is slowing, so the Fed is seeing the intended results. And maybe it would make sense to slow down a bit. But the Fed would rather err on the side of overdoing rate hikes than stop too early,” Cholly noted. “I wouldn’t be surprised to see some kind of Fed comment soon.”
Cholly expects to see softer language from the Fed only early next year. “It would be premature to talk about a break. Powell can’t just deny what he said two weeks ago. It’s hard for me to see gold going to $1,900 or $1,950,” he noted.
Next week’s gold price development will be mainly driven by the US dollar, which is the most weighted factor in gold’s ability to continue its rise.
“The dollar is the main thing I’m watching because we’ve seen so much movement. Will this trend continue? Is the dollar going to go down or hold? That’s going to have a big bearing on whether gold can hold on to the gains,” Millman noted.
Longer term, gold is looking to regain control above $1,700 an ounce and outperform most commodities next year, said Mike McGlone, senior macro strategist at Bloomberg Intelligence.
“The Fed’s rate-hiking hammer this year may have solidified the foundation for an elongated gold market,” McGlone said Friday. “Rapidly rising interest rates in 2022 and the sharpest drop in U.S. Treasuries since 1982 relative to its 200-week moving average could set the stage for gold to continue to typically – outperform most commodities.”
Next week’s information
Tuesday: US PPI, NY Empire State Manufacturing Index,
Wednesday: US retail sales
Thursday: US building permits and housing starts, US jobless claims, Philadelphia Fed Manufacturing Index
Friday: US existing home sales
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