Gold price keeps peddling around $2,300 but going nowhere fast

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Gold price keeps peddling around $2,300 but going nowhere fast teaser image

(Kitco News) - The gold market is spinning its wheels, caught in a stalemate, which could create some profit-taking among investors and weigh on prices in the near term.

According to analysts, gold investors need more clarity from the Federal Reserve as a rate cut this summer becomes increasingly unlikely.

"It seems that gold bulls are a bit tired now, and they need a clear message from the Fed in relation to their monetary policy," said Naeem Aslam, Chief Investment Officer at Zaye Capital Markets.

The gold market is looking to end the week testing support around $2,300 an ounce. June gold futures last traded at $2,309.70 an ounce, down roughly 1% from last Friday. Despite gold's selloff in the previous two weeks, prices are up 15% from the mid-February lows.

Investors have been questioning the Federal Reserve's monetary policy since Wednesday after the central bank left interest rates unchanged in a range between 5.25% and 5.50%. The central bank signaled that it wasn't ready to cut rates as inflation remains stubbornly high.

While the easing cycle has been delayed, Fed Chair Powell was clear that rates will not be going higher.

"I think it's unlikely that the next policy rate move will be a hike. I'd say it's unlikely," Powell said during his press conference.

Friday's employment data added to gold's volatility, which showed that the U.S. economy created 175,000 jobs in April, significantly missing expectations. At the same time, the unemployment rate rose to 3.9%, and wages grew less than expected.

While the jobs report does support Fed rate cuts and, therefore, higher gold prices, analysts have said that the timing uncertainty continues to dominate market sentiment, and investors who have seen significant gains in recent weeks could use rallies to take profits.

"With the US economy creating 175k jobs last month and the unemployment rate rising to 3.9%, markets are now expecting the Fed to cut rates as soon as September," said Lukman Otunuga, Manager of Market Analysis at FXTM. The current weakness could be the product of profit-taking despite the bullish fundamentals today. Looking ahead, the precious metal is likely to remain sensitive to speeches by Fed officials and data, which could provide more clues on Fed cut timings for 2024."

Although prices still have some technical bullish momentum, Otunuga said traders must keep an eye on $2,300.

"A move below $2300 could see gold test $2230. Should $2300 prove to be reliable support, bulls may retest $2390."

In a note Friday following the nonfarm payrolls data, Bark Melek, Head of Commodity Strategy at TD Securities, said that he sees limited upside for gold in the near term. He added that despite the disappointing employment data, the Fed is still in no hurry to cut rates.

"We still have inflation, which is much too high for the FOMC to be comfortable pulling the trigger on cuts at the next meeting," Melek wrote. "This data is unlikely to be enough for ETF investors and mainstream money managers to chase gold. As such, the upside is limited for now, with $2,330 as a reasonable short-term upside target. That aside, we see the yellow metal moving into the $2,500 territory once there is more solid economic weakness and markets are more certain regarding the timing and magnitude of cuts."

Although the gold market could see some near-term volatility and lower prices, Christopher Vecchio, Head of Futures Strategies and Forex at Tastylive.com, said it is still an attractive long-term investment.

He pointed out that Powell's comments put a solid ceiling on interest rates, which will put a solid flow in gold prices.

"I think it's a reasonable assumption to suggest that the floor continues to move higher in gold prices. These pullbacks aren't going to be as deep as the last ones," Vecchio said. "Gold's very much in price discovery mode because this is uncharted territory. We're searching out gold's role and its relationship in whatever new financial economic regime we're working our way into."

Although gold is holding support at $2,300 an ounce, Vecchio said there is some interesting support at $2222.92, a previous swing level.

Despite the potential downside, Vecchio said that he expects gold to remain in a long-term bull market as Chinese gold purchases dominate the marketplace and generalist investors look to hedge against growing government debt.

"Gold is a hedge against sovereign stupidity at the end of the day," he said.

Analysts also expect gold prices to consolidate as the economic calendar is relatively light next week. After the Federal Reserve's monetary policy decision, the spotlight will be focused on the Bank of England.

The Bank of England is expected to keep interest rates unchanged next week; however, it is expected to start its easing cycle before the Federal Reserve, which could provide some support for the U.S. dollar, creating a headwind for gold.

Next week, markets will also see several central bankers come out of the woodwork.

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, will be speaking in New York; Thomas Barkin, Richmond Fed President, will be speaking at an event in South Carolina; New York Fed President John Williams will be speaking at a conference in California; Fed Governor Lisa Cook will be speaking in Washington D.C., and Austan Goolsbee, President of the Federal Reserve Bank of Chicago will be speaking at the Economic Club of Minnesota.

At the same time, with a growing focus on U.S. debt, analysts have said that gold could be sensitive to 10-year and 30-year bond auctions next week. These auctions have been disappointing as participation has dropped.

Meanwhile, investors will be paying attention to consumer sentiment and inflation expectations data at the end of the week.

Economic data to watch next week:

Wednesday: 10-year bond auction

Thursday: Bank of England monetary policy decision, weekly jobless claims, 30-year bond auction

Friday: Preliminary University of Michigan consumer sentiment

Neils Christensen

Neils Christensen has a diploma in journalism from Lethbridge College and has more than a decade of reporting experience working for news organizations throughout Canada. His experiences include covering territorial and federal politics in Nunavut, Canada. He has worked exclusively within the financial sector since 2007, when he started with the Canadian Economic Press. Neils can be contacted at: 1 866 925 4826 ext. 1526 nchristensen at kitco.com @Neils_c

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Federal Reserve gold U.S. dollar Bank of England Bank of Minneapolis Naeem Aslam Bark Melek TD Securities

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